Anyone for Marstons (MARS)?

[JoyofBricks8]

But how does it double in size?

How does it double sales?

How does it double EPS?

What is it’s moat?

Pubs are not exactly great compounders of value. Though Marstons is a decent enough pub company. I just don’t see it doubling or compounding value. If that’s the case : Why bother?

It’s main assets are its properties. It’s main liabilities are paying those properties off. It generated £45m post tax profit on 3 billion quids worth of assets. Interest payments ate up two thirds of operating profit. That is already enough to know it’s really not a business I want to get too deep into.

Look and compare with figures at Bioventix, probably one of the best investments over the last few years. Profits of 5million, Assets:10 million. Debt, nada. I know where my chips are placed. One is a far better company than the other. The only quibble is the price, but if I have taken one lesson to heart from 2008 on, it is that it is worth paying high multiples for good companies.


Back to Mars: No obvious path to growth, big debt, and domestically focussed. I have been hammered on similar companies too frequently to get too enthusiastic. I might consider MARS as a value or income play but these really have been underperforming strategies in the last several years.

[jackdaww]

another high yielder .

the market thinks there are reasons for that .

[barchid]

Joyofbricks, I fear, is spot on. I am a holder in my SIPP, mainly for a safe income but became disillusioned with it and have reduced holding after the Greene King takeover.
I note that the 137 pubs sold to Admiral were on a fairly large discount to book, I was also disappointed that their proposed sale of Pitcher & Piano bars failed due to price disagreement, so together these two sales/attempted sale makes me wonder how accurate their asset valuation really is ?
Why have I only sold some, that is because as the UK's largest brewer they are surely a tempting take over target (especially with a cheap £) ?
Not the best reason for being a stale bull, I admit, but I do think a bid is a possibility, so I may as well be paid to wait a bit longer.

[johnhemming]

I have some of these really as a value/income play. I see them as being relatively boring. If they are working on selling off the less performing pubs and using the cash to pay down debt that is a good thing which might give an improvement to the share price, but if the price maintains its position in real terms I will be happy with the dividend.

[Itsallaguess]

another high yielder .

the market thinks there are reasons for that .

Sometimes there is a reason for that, and perhaps not the one you're alluding to....

Take Greene King for instance - similar market, similar high-yield, and yet it was bought out at a large premium to it's share price at the prevailing time whilst it was sat very firmly indeed in 'high-yield' territory....

Why might that be, if 'the market' knew these spurious 'reasons' that you speak of?

Recent high-yield history of Greene King before the buy-out - https://www.dividenddata.co.uk/dividend ... y?epic=GNK

Recent Greene King price history over a similar period - https://tinyurl.com/w5pklrk

I think there's sometimes a very repetitive analysis on these boards that high-yield automatically means low-quality and high-risk, and I think that's as equally unimaginative as someone who might perhaps try to convince people that high-yield always means a 'great' investment too...

Perhaps there's some middle-ground, might you agree, where high-yield might not automatically qualify a share for either end of that spectrum, and still allow such investments to sometimes indicate good companies simply throwing off cash...

I should add here that I don't currently have a view on Marstons itself, but I just wanted to comment on the oft-repeated statement above, which often seems unjustified as a standalone sound-bite, and especially when we can gauge it against a very recent peer-company in exactly the same market segment, which has clearly been a good investment over recent years for seekers of such 'high-yield' companies....

Cheers,

Itsallaguess

[JoyofBricks8]

Back to Mars: No obvious path to growth, big debt, and domestically focussed. I have been hammered on similar companies too frequently to get too enthusiastic. I might consider MARS as a value or income play but these really have been underperforming strategies in the last several years.

Thank you JoB8, excuse my pruning of the post. I think you nailed it in the last sentence actually. Do we expect the next ten years to be like the last ten? Or the ten before that? etc......

Will the next decade mirror the last? No idea sadly. One thing I am convinced about is that on average, good companies will ultimately reward shareholders more consistently than poor companies. The research we have shows most stocks (on US markets) underperform bonds, and most value is created by a very small minority of companies.

So as a stock picker one has taken the decision to eschew the safety of bonds, and to eschew the guaranteed market outcome of passive investing. By stock-picking one is taking the brave decision that one has an edge in looking for that one in twenty company that over time can compound value beyond the normal.

So ask yourself; is this fairly run-of-the-mill, lowly rated, indebted pubco the one stock that has something special, that has the potential to be the next Amazon or Bioventix?

Because I just don’t see why one would want to choose this pubco offering over a passive tracker. Nothing about it indicates transformative or even superior returns. And make no mistake: by stockpicking, one is venturing away from safety and gambling every dollar solely in the hope of transformative or superior returns.

I wish you luck and hope you find the best opportunity out there and make a ton of dosh.

[johnhemming]

There is an alternative perspective (one which I have) which is that it is sensible to have a portfolio of risk.

There is always cash covered by the FSCS and land/property. Rental property can have a yield of say up to 7%, but there are currently tax issues anyway and hassle factors. Personally I rent out parts of my private office (which is a big building in Birmingham), but I am not otherwise wanting to be a landlord.
There can be relatively low risk items such as secured loans, some bonds and preferred stock (although fixed interest has had its risks as well).
Then there are relatively boring stocks that give a better return than the fixed interest items.
Then there are the more interesting stocks such as FXPO where there are known unknowns.
Then we go into the growth arena.

I put MARS (hopefully) as relatively boring. I think it is worth having a range of types of investment. The market sells known unknowns, but ignores unknown unknowns. Hence it is the unknown unknowns that are likely to get you in the end.

I don't personally like the trackers as they are loaded up with unknown unknowns.

[simoan]

There is an alternative perspective (one which I have) which is that it is sensible to have a portfolio of risk.

There is always cash covered by the FSCS and land/property. Rental property can have a yield of say up to 7%, but there are currently tax issues anyway and hassle factors. Personally I rent out parts of my private office (which is a big building in Birmingham), but I am not otherwise wanting to be a landlord.
There can be relatively low risk items such as secured loans, some bonds and preferred stock (although fixed interest has had its risks as well).
Then there are relatively boring stocks that give a better return than the fixed interest items.
Then there are the more interesting stocks such as FXPO where there are known unknowns.
Then we go into the growth arena.

I put MARS (hopefully) as relatively boring. I think it is worth having a range of types of investment. The market sells known unknowns, but ignores unknown unknowns. Hence it is the unknown unknowns that are likely to get you in the end.

I don't personally like the trackers as they are loaded up with unknown unknowns.

Thank heavens for a voice of reason. Discussing individual companies is meaningless without context, and no-one ever mentions risk adjusted returns in these types of thread. Has the original holder just sold his house and now want to invest the proceeds in a single company? if so, I'd say Marstons probably fits the bill better than Bioventix. FWIW I own both MARS and BVXP for entirely different reasons as part of a risk adjusted growth and income portfolio.

All the best, Si

[mattman74]

After being in Marstons for 6 years I finally sold out last month (apart from the 500 shares for the shareholder benefits)
They were about 5% of my portfolio.

The reason was Phil Oakley's recent detailed analysis in the Investors Chronicle. He basically dissected last years annual report over five weeks to show how to understand a company. It was not pretty reading. I think his thought was that they are not making enough returns on the capital. ROCE was about 6% I think. Other signs were their unexpected cancellation of their new new pubs/hotel program and their selling of pubs below book value. Holding the dividend was a factor as well.

It is just that they are not making enough money. In any downturn they could be hit hard - pubs are discretionary spending.

To be honest I feel a little sad, I am fond of the product and I like the chief exec. I liked the divi as well. So it looks as though I was emotionally invested in them - they were my pub company

(I put the money in Diverse Income Trust - DIVI. I am slowly moving away from HYP to Investment trusts)

Lesson learned I hope

Matt

[johnhemming]

Thank heavens for a voice of reason. Discussing individual companies is meaningless without context, and no-one ever mentions risk adjusted returns in these types of thread.

There is an interesting article in this weeks IC quoting "Research has shown that 'risk' in a portfolio. which is the standard deviation of returns from the average, halves as the number of holdings rises from 1 to 10. More importantly, there is no worthwhile risk reduction once a portfolio gets beyond 20 holdings."

I wish they had reported the figures for this. There obviously is a balance between different types of risk and diversification risk, but it would be nice to see the underlying figures if anyone knows where this research is.

MARS has an exposure to the UK which would suffer to some extent from a no-deal brexit, but some certainty should help the UK economy to some extent regardless of the actual certainty and MARS would then benefit from that.

[Dod101]

There is an interesting article in this weeks IC quoting "Research has shown that 'risk' in a portfolio. which is the standard deviation of returns from the average, halves as the number of holdings rises from 1 to 10. More importantly, there is no worthwhile risk reduction once a portfolio gets beyond 20 holdings."

Some time ago (if you contribute to this site for more than about 5 years the same subjects come up again and again) it was shown that 'risk' drops very rapidly after about 15 holdings and as jh said after the number of holdings rises much above 20, further reduction in risk is negligible.

As for Marstons, I would not buy it for the same reason I would not buy Lloyds Bank; they are both almost 100% reliant on the UK economy. Of the two I guess that Lloyds might be the better bet.

Dod

[johnhemming]

Oddly enough I have Lloyds as well.

The market sells uncertainty and I think it has over sold the stocks based upon the UK economy. Whether it has oversold them for a no deal brexit is unclear, but given that Johnson has decided to deliver what the ERG will vote for and ignore the DUP we probably won't have a no-deal brexit now.

Economically all the other options are better.

[Dod101]

I do not think that there is much doubt but that the UK facing stocks are oversold but that state of affairs can go on for some time. Well until 13 December anyway. If we get a positive result (meaning a Conservative clear majority) then I would expect the Brexit situation to be settled fairly quickly and without resort to a no deal. UK shares should then move up fairly rapidly I would have thought. If we do not, whether a hung Parliament or worse a Labour/SNP pact, we are in trouble.

However I still do not like shares which are solely dependent on the UK economy such as Marston and Lloyds and many of the utilities.

Dod

[scrumpyjack]

I wouldn’t buy pub groups now. I did have a large holding of Greene King which I first bought in about 2001 and that has proved to be a good investment (cash from the takeover this week I think), but pub groups now have huge headwinds to overcome and very very large debts often built up at much higher than current interest rates. I can’t help feeling that creative accounting is one factor in helping them keep their heads above water.

Whilst they have a lot of property I’m not confident of its value, although the Chinese must have liked GNKs assets I suppose.

Not sue what to invest the GNK proceeds in, but it won’t be Marstons

[simoan]

There is an interesting article in this weeks IC quoting "Research has shown that 'risk' in a portfolio. which is the standard deviation of returns from the average, halves as the number of holdings rises from 1 to 10. More importantly, there is no worthwhile risk reduction once a portfolio gets beyond 20 holdings."

Some time ago (if you contribute to this site for more than about 5 years the same subjects come up again and again) it was shown that 'risk' drops very rapidly after about 15 holdings and as jh said after the number of holdings rises much above 20, further reduction in risk is negligible.

This kind of research is all very well, but it really depends what 20 companies you choose, and how well you want to sleep at night. I would suggest that most people are not good enough stock pickers to pick a 20 company portfolio that will beat the FTSE All-share index tracker regularly, and certainly not on a risk adjusted basis. It would be very easy to pick 20 companies that turned out to have a high level of correlation and hence risk. There's no way I'd want 5% of my portfolio in one company, but that's just me, and I'm quite happy to hold 50+ companies spread across a range of market caps, geographies and sectors. It's pretty difficult to do that if you artificially limit yourself to 15-20 holdings.

As for Marstons, I would not buy it for the same reason I would not buy Lloyds Bank; they are both almost 100% reliant on the UK economy. Of the two I guess that Lloyds might be the better bet.
Dod

I don't understand this approach. If most of your shares have international exposure why wouldn't you want one or two with UK exposure for balance in your portfolio? You're making the mistake of predicting the future of the UK economy. Who knows what the future holds for the UK economy? All I know is that I have no idea! This in itself is very powerful - recognising there are known unknowns and not being influenced by them. One of my best investments YTD has been Next. Up 65% not including dividends. Who would've thought it? A 100% UK retailer outperforming Apple, Microsoft, Facebook et al.

All the best, Si

[Dod101]

I am most certainly not predicting the future of the UK economy!

I think my best investment of the last 20 years or so was probably Tullow Oil which I bought at £1 and sold in December 2012 or thereabouts at £14.

There are plenty other examples and you do not need to be clever, just a bit intuitive and give time to work its magic. By intuitive all I mean is 'Do not be stupid and expect results he next morning. The best things take time to mature.'

On that philosophical note, goodnight,

Dod

[IanTHughes]

There is an interesting article in this weeks IC quoting "Research has shown that 'risk' in a portfolio. which is the standard deviation of returns from the average, halves as the number of holdings rises from 1 to 10. More importantly, there is no worthwhile risk reduction once a portfolio gets beyond 20 holdings."

Some time ago (if you contribute to this site for more than about 5 years the same subjects come up again and again) it was shown that 'risk' drops very rapidly after about 15 holdings and as jh said after the number of holdings rises much above 20, further reduction in risk is negligible.

This kind of research is all very well, but it really depends what 20 companies you choose, and how well you want to sleep at night.

In point of fact, one could wear a blindfold and pick 15 or 16 shares with a pin. As long as the shares selected were completely and properly diversified by Industry Sector, one would have reduced one type of risk – Holding Unsystematic Risk – to a small value, such that further selections no longer reduce that same risk in any meaningful way. At 20 holdings you really have no more to gain in the reduction of this one risk.

Unsystematic risk, is the risk to a specific industry or security and for this reason is sometimes referred to as as Diversifiable risk, for obvious reasons.

Of course you will not have reduced at all the Market Unsystematic risk, if the market drops by 50% your portfolio will surely be similarly affected, and you may still be running a high Systematic risk, not least by picking blind what may be several weak companies.

Systematic risk refers to the largely unpredictable risk that comes with investing in any company or sector. For example a Pharma Company is adversely affected by a drug scare like Thalidomide. An Oil Company drilling rig blows up and scatters pollution across a wide area which must be cleaned up.

I would suggest that most people are not good enough stock pickers to pick a 20 company portfolio that will beat the FTSE All-share index tracker regularly, and certainly not on a risk adjusted basis. It would be very easy to pick 20 companies that turned out to have a high level of correlation and hence risk. There's no way I'd want 5% of my portfolio in one company, but that's just me, and I'm quite happy to hold 50+ companies spread across a range of market caps, geographies and sectors. It's pretty difficult to do that if you artificially limit yourself to 15-20 holdings.

Well, you may be correct in that choosing a portfolio limited to a maximum of 15 to 20 shares is not for everyone, but then you must also recognise that your 50+ companies solution significantly increases the risk of finding more of those bad investments that will drag down your performance. Yes, each individual investment failure will cost you less but there will be more of them. What you are doing, as I am sure you are aware, is accepting that possibility and ensuring that your portfolio performance more closely follows that of the market whole. In which case why not go the whole hog and buy the whole market?

For my part, I am comfortable that, with a few fairly simple filters - P/E, Debt levels and the like - added to strict diversification, I can indeed pick a smaller portfolio that stands a good chance of beating the market. No guarantees of course and those other risks still remain. As the famous warning goes, "You may get back less money that you paid in". Of course in my case I do not want the money back, just the dividend income but that only means that I have to accept the risk that income may vary down as well as up, maybe significantly. Further, I do not believe that my investing skills are anything special so probably more people would be able to achieve what I can if they only had the confidence to try and are prepared for the risks involved.


Ian

[simoan]

I am most certainly not predicting the future of the UK economy!

So why do you eschew Lloyds and Marstons purely due to their UK exposure? That's what you wrote. What's that if it's not a judgement on the UK economy?

I think my best investment of the last 20 years or so was probably Tullow Oil which I bought at £1 and sold in December 2012 or thereabouts at £14.

I don't see the relevance of this statement. Why not tell us your worst ever investment, or have you never suffered very large losses? A single data point like this is of no value to the rest of us.

All the best, Si

[simoan]

Well, you may be correct in that choosing a portfolio limited to a maximum of 15 to 20 shares is not for everyone, but then you must also recognise that your 50+ companies solution significantly increases the risk of finding more of those bad investments that will drag down your performance. Yes, each individual investment failure will cost you less but there will be more of them. What you are doing, as I am sure you are aware, is accepting that possibility and ensuring that your portfolio performance more closely follows that of the market whole. In which case why not go the whole hog and buy the whole market?

Ian

The most important point is that owning 50+ shares does not increase risk, and if you own a high percentage of small cap companies, which are inherently more risky (or at the very least have higher volatility) only a fool would limit their entire portfolio to only 15 shares. A large percentage of my holdings are small caps. It is easy to underestimate risk, and indeed, human beings have been proven to be terrible at estimating it. This is the reason I read books on the subject. In fact most of the books that have been most useful to my investing are not specifically about investing at all!

Why not buy the whole market? Put simply I enjoy analysing companies and taking responsibility for my own investments, and most importantly my results over the past 20 years have smashed the FTSE All-Share. That's actually not that difficult to achieve because the index contains a lot of poor quality companies and in many cases is heavily weighted towards them.

All the best, Si

[Dod101]

I am most certainly not predicting the future of the UK economy!

So why do you eschew Lloyds and Marstons purely due to their UK exposure? That's what you wrote. What's that if it's not a judgement on the UK economy?

I think my best investment of the last 20 years or so was probably Tullow Oil which I bought at £1 and sold in December 2012 or thereabouts at £14.

I don't see the relevance of this statement. Why not tell us your worst ever investment, or have you never suffered very large losses? A single data point like this is of no value to the rest of us.

Marstons and Lloyds I eschew because of their exposure almost solely to the UK economy, but neither are in very attractive industries to be exposed in that sort of way. All my shareholding are companies incorporated in the UK and most of them have exposure to the UK economy one way or another.

As for Tullow, I was only commenting on it since you mentioned Next. Next is obviously that rare exception, and good for you to be holding it.

Dod