Flooding could cost Marston's £11m
Flooding in Gloucestershire and the West Midland could could cost Marston's £11m, a City analyst has claimed.
Paul Hickman, of KBC Peel Hunt, thinks the number of Marston's pubs hit by flooding could be in three figures. The damage ranges from complete flooding to those where only the cellar is affected. The company's policy is effectively to self-insure both for fabric and for loss of profits.
Hickman said: "We assume that of the total estate of 2,256 pubs, this affects around 5%. On the normal mix, about 90 of those would be tenanted and 30 managed. Forecast revenue for managed pubs is £150m for H2. 5% of that for an average of three months would be £3.8m. "Tenanted pubs are forecast to earn £51m for the company in H2. Approximately half of that is in the form of beer and machine income which is variable. 5% of that for a three month period would be £0.6m. The other half is rental income.
If we assume that 50% of those affected would require rent relief for three months, the effect would be £0.3m. "On these crude assumptions, the revenue effect of flood damage would be approx £5m, or 5% of pre-tax profit." Fabric repairs would, we assume, be in a range of £25,000 -120,000. At an average of £90,000 each for 120 pubs, the cash cost would be £11m."
Hickman said he expected repair costs would either be capitalised or treated as exceptional. He added: "Trading losses are probably not large enough to justify exceptional treatment, so the conclusion could be a 5% earnings effect. "The effect is clearly temporary and does not affect the validity of Marston's proposition, nor its underlying asset backed value, which we continue to rate at 500p."
