ii view: better times at pub chain Mitchells & Butlers

Food sales have been outperforming drink sales. We assess prospects for this owner of major brands. 

51-week trading update to 18 September

• Total sales year-to-date at 45% of 2019 pre-Covid levels
• Cash balance of £197 million

Chief executive Phil Urban said:

"We are encouraged by the improvement in sales performance following the easing of restrictions. However, we are still seeing volatility and a contrast between sales performance at food led and wet led brands, highlighting the continuing uncertainty.

“Our diverse estate, balanced across a wide range of offers, puts us in a strong position coming out of the pandemic. We are looking forward to the new financial year, with a renewed focus on our capital plan and generating both sales and efficiencies through our Ignite improvement programme."

ii round-up:

Pub and restaurant owner Mitchells & Butlers (LSE:MAB) today announced strengthening trading following earlier year temporary outlet closures under pandemic lockdowns. 

Like-for-like sales had hit 104% of pre-Covid levels in the most recent eight-week period to 18 September. That’s up from 97% in the 18 weeks since the 17 May when most of its outlets reopened. 

M&B shares rose by more than 2% in UK trading, bringing their gain since pandemic induced market lows in March 2020 to just over double. Shares for rival JD Wetherspoons (LSE:JDW) are up around 50% in that time.

The Birmingham headquartered company operates around 1,700 outlets with its brands including All Bar One, O’Neills and Nicholson's. It previously announced 1,300 staff redundancies under measures to conserve cash and battle the pandemic. 

Current year figures include the benefit of the government’s temporary reduction in the rate of VAT on food and non-alcoholic drink sales.

Sales had continued to be stronger in suburban and food-led brands, particularly at the more premium end of the market.

Total sales year-to-date, and including the 18 weeks of enforced Covid closures, are running at a rate of 45% of those achieved before the pandemic.

Broker Morgan Stanley forecasts full-year 2021 sales of £1.03 billion, down from the £2.23 billion made in the pre-Covid 2019. 

M&B, which launched a £350 million shareholder fund raising back in February, held cash of £197 million as of 18 September, with undrawn unsecured facilities of £150 million.

Full-year results are due in November. 

ii view:

Other group brands include Harvester, Toby Carvery, Miller & Carter, Premium Country Pubs, Sizzling Pubs, Stonehouse, Vintage Inns, Browns and Ember Inns. It usually serves around 130 million meals and 400 million drinks every year. Along with its outlets in the UK, it also operates a small number of sites in Germany. 

For investors, Covid uncertainty remains. Some delays in the return of staff to the office have been seen, industry costs broadly are rising. The full economic impact given now stretched government finances may yet not have been seen, and a focus on reducing debt at the company has been seen. 

That said, an improving if volatile sales picture at this operator of strong brands remains ongoing, while the valuation looks attractive if assuming a return to 2019 earnings levels. In all, and with analysts currently estimating a fair value price of over 350p, more speculative investors may continue to take an interest.  

Positives: 

• Diversity of brands
• May gain market share from the loss of rival smaller competition

Negatives:

• Uncertain Covid and economic outlook
• First-half loss before tax of £200 million

The average rating of stock market analysts:

Strong buy