Broker snap: Marston's eye-catching divi looks safe

22nd May 2009 09:48

Doubts about the commitment of Marston's to maintaining its dividend have been dispelled, at least for now, by Friday morning's announcement of a maintained interim dividend. The shares are now trading on an implied dividend yield of 8%, underpinning broker KBC Peel Hunt's 'buy' recommendation.'The interim dividend is held, despite cover falling to 1.7x. Management aims to keep cover close to 2x "in the medium term" but is clearly confident that it can modify this short term, given a well funded balance sheet,' said KBC analyst Paul Hickman.'We have stress-tested the balance sheet and calculate that a 16% LFL [like for like] decline would be required to cause a cash trap and a 28% decline would be required to breach the securitisation default covenant,' Hickman said. 'Marston's combination of sensible securitisation and bank debt means it has adequate headroom above covenants even under severe stress conditions,' Hickman believes.KBC is upgrading its full-year earnings per share forecast by 6% to 19.5p while its profit before tax forecast is lifted by 2% to £68.4m. The discrepancy in the size of the upgrades is explained by expectations of a lower tax charge than previously assumed. 'On a flat dividend forecast for the year of 13.3p the yield is 8.3%. Maintaining a substantial dividend income for investors is, we believe, a strategic priority for management,' the broker concludes. KBC Peel Hunt has a price target of 180p for the stock.