ii view: are Mitchells & Butlers shares a World Cup buying opportunity?

First-half results to 11 April

• Like-for-like sales up 3.3%
• Adjusted operating profit unchanged at £181 million
• Net debt of £1.15 billion including lease liabilities, down from £1.29 billion a year ago

Chief executive Phil Urban said:

"We have delivered another robust performance over the first half reflecting continued focus on enhancing guest appeal across our diverse portfolio of brands, driving sales growth through compelling customer offers and disciplined execution. 

Maintaining profits despite the significant inflationary cost challenges facing the sector is testament to the dedication of our teams in delivering the benefits of our Ignite and capital programmes. 

“Despite the backdrop of macro uncertainty our priorities remain unchanged, our guest scores are at record highs, we remain committed to the delivery of quality experiences, and we are well placed to further grow market share."

• Learn with ii: How to become an ISA millionaire | ISA Investment Ideas | Top ISA Funds

ii round-up:

Pub and restaurant group Mitchells & Butlers (LSE:MAB) operates 1,712 sites in the UK and Germany of which 1,638 are directly managed.

The group’s many brands include All Bar One, Nicholson’s, Miller & Carter, Harvester, Toby Carvery and the ‘Alex’ brand in Germany.

For a round-up of these latest results announced on 21 May, please click here.

ii view:

Started in 1898, the Birmingham-headquartered Mitchells today employs around 50,000 people.
Food generated most sales during its last financial year at 54%, with drink 43%, and services such as rents from unlicensed properties, a small balance of 3%. As well as other UK brands such as O'Neill's, Harvester and Ember Inns, the group also operates the ‘Alex’ chain of bars in Germany, generating 4% of overall sales.

For investors, second quarter like-for-like sales up 1.8% slowed from growth in the first quarter of 4.5% with tube strikes and the weather potential factors. Higher labour costs are being battled with food and energy costs historically volatile. Although remaining a management focus, group net debt of £1.15 billion compares to a stock market value of £1.4 billion, while the halted dividend payment to help reduce debt contrasts with estimated future yields of over 1.5% at rivals Wetherspoon (J D) (LSE:JDW) and Fuller Smith & Turner  Class A (LSE:FSTA).

• Why fund managers are still bullish
• Why Prudential shares are undervalued by 59%
• Have stock markets kept pace with World Cup final ticket boom?

To the upside, management’s expected cost headwinds for the current financial year of £120 million is better than a previous estimate of £130 million. Some 19 different brands are spread across the mid-to-upper market segments, offering diverse consumer exposure. Falling group net debt was previously highlighted as underpinning management’s ongoing pondering for a restarting of shareholder returns, while the group’s ‘Ignite’ programme continues to target increased efficiencies.  

For now, and despite ongoing risks, a diversity of established brand names and a consensus analyst estimate of fair value sat at over 345p per share will likely continue generating investor interest.

Positives:

• Diversity of brands
• Ongoing management efficiency programme

Negatives:

• Uncertain economic outlook
• Potential currency headwinds from Germany business

The average rating of stock market analysts:

Buy