On Thursday, Marston’s (LSE: MARS) shares fell by about 12.5% as Platinum, the US private equity firm, walked away from bidding for the pub group.
The pub chain rejected offers of 88p a share and 95p a share in December, and a third offer of 105p at the end of January.
Investing in pub groups as the vaccine rollout continues
There’s no doubt pubs have been hit hard by lockdowns. All over the country, pubs are shut and have been for a long time. Yet over the last few months, the group’s share price has risen (although it’s well down over the three-year and five-year periods). Nonetheless, why are the shares rising?
I think primarily it relates to the excitement around the unsolicited bid for the group. There’s now a growing expectation that the whole sector may go through a period of mergers and acquisitions as smaller rivals struggle and prices are depressed because of the pandemic. The original Marston’s bids did represent a modest premium to the share price at the time, so there could be other bids at a larger premium. This could potentially be good news for existing shareholders.
There’s also an expectation that the vaccine rollout will mean pubs can reopen later this year, which is helping lift share prices. Competitor JD Wetherspoon has seen a smaller boost to its shares in recent months as well.
There’s also Marston’s joint venture with Carlsberg which has given it cash, which is helpful at the moment. That too will likely have boosted investor sentiment and could help the group for years to come.
On the other hand, there are worries around new variants of the vaccine, and ministers have been unable to say when pubs can reopen. Because of this, I think buying the shares as the global pandemic carries on is still fraught with risk.
Would I buy Marston’s shares?
It’s this risk that would keep me awake at night if I was a Marston’s shareholder. There’s the question of when it might be able to grow revenues again, on top of the issue of its net debt. At the time of its first-half results last year, that was well over £1bn.
Despite falling recently, the share price is still well up on where it was just a few months ago. In that time, very little has changed, apart from the vaccine rollout success to date. For me, as a long-term investor, I’m not seeing much in the shares to suggest they are worth buying.
So, although the share price has fallen this week, I won’t be adding Marston’s to my portfolio. The shares haven’t fallen enough, in my view, to offer me a sufficient margin of safety. I’d only invest in the shares if multiple new bids came through for the group, at a significant premium to the current share price. That may happen, but it also may not.