Interactive Investor

ii view: All Bar One owner Mitchells & Butlers has busy Christmas

Owning a variety of hospitality brands and with food its biggest revenue generator. Buy, sell, or hold?

17th January 2024 11:26

Keith Bowman from interactive investor

First-quarter trading update to 13 January

  • Like-for-like sales up 10% over the five key festive days
  • Like-for-like sales up 7.7% for the quarter

Chief executive Phil Urban said:

"We are delighted by the strong trading performance over the festive season. Growth was particularly strong on key dates, with record sales for Christmas day based on 229,000 meals served.

“Our focus remains on the effective execution of our Ignite programme of initiatives and our successful capital investment programme, driving cost efficiencies and increased sales.”

ii round-up:

All Bar One owner Mitchells & Butlers (LSE:MAB) today detailed strong festive trading, enabling it to nudge up full-year profit expectations toward the high end of current City forecasts. 

Aided by the return of work parties and festive gatherings, like-for-like sales for the five key Christmas trading days climbed by a tenth, underpinning sales growth of 7.7% for the 15-week first quarter period to 13 January.  

Despite a terrible day for stocks more broadly following a shock hike in inflation, shares in the FTSE 250 company rose around 2% in UK trading having come into this latest news up 87% in 2023. That’s similar to rival Wetherspoon (J D) (LSE:JDW) and far ahead of a near 5% increase for the wider FTSE 250 index last year. 

Mitchells operates over 1,700 pubs and restaurants across UK brands including Nicholson's, O'Neill's, and Harvester along with its Alex branded bars in Germany. 

Full-year adjusted profit (EBIT) is now estimated by management to come in at around £290 million. That compares to the average City forecast of £270 million and last year’s £221 million. 

Like-for-like food sales of 8.7% for the quarter outpaced drink sales of 6.6%, with total sales including net outlet openings and closings rising 9.7%.  

Accompanying management outlook comments pointed to an expected easing in cost pressures except for wages. 

First-half results are likely to be announced in mid-May. 

ii view:

The Birmingham headquartered company’s many brands include Toby Carvery, Browns, steak restaurant Miller & Carter and Vintage Inns. Food generates its biggest slug of revenues at just over a half, followed by drink at just over two-fifths and services such as hotels under its Innkeeper brand the balance. Geographically, the UK generates most of the revenue, with Germany chipping in less than 5% of sales. 

For investors, elevated borrowing costs and a recent rise in inflation continue to pressure UK consumer spending, and a 9.8% increase in the National Living Wage next April feeds into group costs. Net debt of £1.63 billion as of late September compares to a stock market value of £1.5 billion, while a suspended dividend payment contrasts with a yield of over 2% at rival Fuller Smith & Turner Class A (LSE:FSTA)

More favourably, cost pressures for key outgoings like food and energy have eased. M&B also has a diverse range of recognisable brands, management initiatives including a focus on costs under its Ignite programme continues, while its concentration on lowering debt at the expense of the dividend looks sensible.   

For now, and despite ongoing risks, a consensus analyst estimate of fair value at over 290p per share is likely to help guarantee the loyalty of existing fans of this hospitality favourite.  

Positives: 

  • Diversity of brands
  • Ongoing management efficiency programme

Negatives:

  • Uncertain economic outlook
  • The weather can impact performance

The average rating of stock market analysts:

Buy

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