The Investment Column: Marston scales up the risks

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The Independent Online
Marston, Thompson & Evershed has been one of the steadiest performers in the brewing sector throughout the 1990s with earnings growing at a solid if unspectacular pace. Throwing off a steady stream of cash has meant shareholders have enjoyed double-digit dividend rises for years and the shares have risen accordingly to yesterday's 332p.

Figures for the 53 weeks to the end of March produced more of the same. A 12 per cent increase in turnover to pounds 171.6m translated into an 11 per cent rise in pre-tax profits to pounds 27.3m. Earnings per share, up 4 per cent to 20.9p, covered the full-year dividend of 7.3p a healthy 3.4 times.

In the core brewing operation, Marston's premium bitter Pedigree suffered along with the rest of the cask ale sector from the introduction of so- called "smooth", creamy-head nitro-keg beers. Pedigree's 5.7 per cent sales decline to national account customers, however, was a better showing than the 8 per cent average fall registered by its rivals.

Difficult trading in brewing was nicely counterbalanced by a 25 per cent rise in retail profits driven by food sales in the 234-strong managed pub estate.

The focus with Marston, though, has shifted from the group's steady underlying trading to an ambitious expansion plan which started last week with the acquisition of the London-based Pitcher & Piano bar chain for pounds 20m. With only seven sites so far, that price looks extremely full, confirming anecdotal evidence that the scramble to jump on the branded-bar bandwagon is leading to some pretty fancy ratings.

David Gordon, managing director, is already gearing up for another acquisition so investors will be forgiven for worrying that the company's risk profile has increased by a sizeable margin. On forecast profits two years out of pounds 32.5m, the shares stand on a forward p/e of 13. High enough given the uninspiring growth and higher risks.