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By Lee Wild

Date: Wednesday 15 Oct 2008

LONDON (ShareCast) - Drinkers are passing on expensive beer and tucking into cheap meals at pub group and brewer Marston's as recession fears cause consumers to tighten their belts.

The Pitcher & Piano owner flagged a “resilient” performance during the year to 4 October, predicting earnings before exceptional items will be in line with expectations due to a slightly reduced tax charge.

Annual turnover was about 2% ahead of 2007, but second half sales were “more subdued” due to falling consumer confidence, increasing inflationary pressures, poor summer weather. Rising food, energy and brewing costs pressured margins.

Like-for-like sales at the managed pub division were 0.6% below last year, while the tenanted and leased pub division saw like-for-like profit drop 1.7% below 2007, including a fall of around 3% in the second half.

But punters are tucking into two for one meals at many of its pubs, boosting food sales, which now account for 36% of total retail sales. Average spend per head on food, volumes of meals sold and like-for-like food sales were all better than last year.

Costs relating to employment, food, energy and brewing raw materials are expected to increase by around £12m next year though, in addition to higher duty, said the firm.

As a result, it estimates that like-for-like sales growth of about 3% is required to achieve a similar level of operating profit at the managed pubs business this year.

The group has also increased the level of support offered to tenants and lessees of Marston's Pub Company to about £2m, reflecting market conditions.

Charles Stanley was impressed with the numbers. The broker said they showed there had been no further deterioration at managed pubs, having already reported a 0.6% drop in like for like sales for the 43 weeks.

It thinks the depressed share price represents enough upside to justify an upgrade to ‘buy’ from ‘hold’, although the price target drops to 175p.

Final results are expected to be announced on 5 December.

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