Derek Pain: Why are these pub chains giving my shares a hangover?

No Pain, No Gain
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The Independent Online

Following the fortunes of the no pain, no gain portfolio can be a deeply disturbing experience. In the past few weeks the shares of two constituents have performed alarmingly. True, the stock market, with the Washington deadlock on its collective mind, has recently been rather volatile but the sheer weakness of Marston's and Whitbread was hard to assimilate.

Marston's collapsed from 165p to 140p; Whitbread was down to below 2,950p from above 3,200p. I suppose worries about the contents of an impending trading statement could have influenced the brewer and pub owner Marston's but there seemed nothing to account for the selling of the Premier Inn to Costa Coffee giant. Possible re-positioning by one or more funds could have instigated the damage.

Last week Marston's produced a reasonable statement and Whitbread, although remaining silent, was suddenly subjected to a flurry of highly favourable comments by stockbroker analysts. As I write, Marston's is trading at around 148p and Whitbread is comfortably above 3,200p again.

In a preliminary statement covering the year ended earlier this month, Marston's revealed that only the lower end of its pubs estate had failed to perform. Sales at its top pubs were up 2.2 per cent with improved margins and at managed and franchised outlets sales were in line with last year. Profits from the leased segment were also similar to the previous year but the more bottom-of-the-barrel pubs produced lower profits with the poor weather earlier this year and disposals blamed for the shortfall. At the brewing arm, accounting for such brands as Pedigree and Brakspear, sales increased by an impressive 6 per cent

In the past five years or so Marston's has built a chain of pub/restaurants and plans another 25 to 30 with yet more on the distant horizon. In the past year it sold 130 pubs for £50m and intends further disposals, bringing in some £60m-£70m.

Chief executive Ralph Findlay talks about a more aggressive "churn" of the estate, currently 2,050 pubs. Stockbroker Jefferies quite likes the shares although its target price is only 155p, against the aforementioned 165p.

The more bullish atmosphere surrounding Whitbread seemed to centre on the reviving economy benefiting its Premier budget hotels, the Costa chain of coffee shops and the Beefeater pub/restaurants. One stockbroker, Oriel, revisited the possibility of Whitbread eventually floating off the coffee business.

Of course, I was pleased to see the revival of two old portfolio stalwarts. After all, Marston's was acquired at 95p and Whitbread at 1,105p. I realise that the stock market in recent times has not been too tolerant of investors' nerves. Since the Footsie hit a year's peak of 6,845 points in May, shares have accommodated a series of ups and downs. But the sudden descent of Marston's and Whitbread made me wonder if something was seriously amiss. Happily, any uncertainty was confined to the stock market.

I hope the duo's display will be repeated by one or two other constituents that have lost some of their exuberance. For example, shares of the Spirit Pub Co have looked friendless in the past few weeks, down from 78p to around 68p. Only announcement of any note was that investment group Schroders, which a year ago had 7.5 per cent of the capital, now has almost 14 per cent. Obviously some funds have sold but I would have thought the Schroders impact would have been more substantial.

I have always maintained that investors who are not out for a quick kill should not be swayed by sudden, unexplained movements. Patience is an investment virtue. Of course problems can arise and once the stock market gets a sniff that a group has hit trouble it takes decisive action. But more often than not when a share moves against the trend it is due to City-inspired manoeuvres.

The Marston's and Whitbread retreats were, from a small investor viewpoint, stock market aberrations. I hope the Spirit uncertainty is in the same category.

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