ii view: brand stable boosts Mitchells & Butlers confidence

Third-quarter trading update to 19 July

• Like-for-like sales up 5%

Chief executive Phil Urban said:

"The business continues to perform strongly, enabling us to meet the cost challenges facing the sector with confidence.

“With the unique strengths of our business, including a diverse portfolio of established brands, value proposition and enviable estate locations, we believe we are positioned to continue to grow profitability and market share."

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ii round-up:

Pub group Mitchells & Butlers (LSE:MAB) today detailed quarterly trading that matched City hopes, with the owner of brands such as All Bar One and Harvester confident in delivering full-year profit towards the upper end of analyst forecasts.

The timing of Easter and sunny weather contributed to 5% growth in third-quarter sales, up from a gain of 4.3% in the first half to mid-April. The City currently expects annual profits of between £320 million and £328 million, potentially up from last year’s £312 million. 

Shares in the FTSE 250 company initially rose 3% in early UK trading before eventually moving marginally lower. Mitchell’s shares are up around 17% year-to-date, ahead of a near 7% gain for the FTSE 250 index itself. Rival Wetherspoon (J D) (LSE:JDW) is up by close to a third in 2025. 

M&B operates over 1,700 pubs and restaurants with other brands including Nicholson's, O'Neill's, Miller & Carter, Toby Carvery, as well as Innkeeper hotels. 

Drink sales rose 4.8% during the quarter, up from a gain of 4.3% in the first half. Food sales climbed 4.9%, accelerating from a gain of 3.6% in H1.

Investments year-to-date included 150 conversions and remodels, the opening of two new sites, as well as the ongoing rollout of energy reducing initiatives such as solar panels and sensors. 

A successful refinancing of its unsecured debt facilities had been made during the period, with the new revolving credit facility reduced to £150 million from £200 million and extended to July 2028.

Full-year results are likely to be announced late November to early December. 

ii view:

Started by the coming together of two Midlands based families in 1898, the Birmingham headquartered company today employs around 50,000 people. Food generated most sales during the first half to mid-April at 54%, with drink at 43%, and services such as rents from unlicensed properties, a small balance of 3%. As well as other UK brands such as Browns and Ember Inns, the group also operates the ‘Alex’ chain of bars in Germany, generating just under 5% of overall sales. 

For investors, pressured UK government finances and concerns about possible tax rises later this year could eventually hinder customer spending. Previously increased UK taxes on employees now offer cost headwinds, with food costs also variable. The impact of unseasonal weather warrants consideration, while the halted dividend payment contrasts with forecast yields of 1.5% and over at rivals Wetherspoons and Fuller Smith & Turner Class A (LSE:FSTA).

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More favourably, sales growth continues to outpace the broader industry average. Management initiatives under the company’s ‘Ignite’ programme include a focus on costs. Investment, or capital expenditure on its estate rose to £92 million during the first half compared to £81 million during H1 2024, while a concentration on lowering debt at the expense of the dividend continues to look sensible.

On balance, and despite ongoing risks, a consensus analyst estimate of fair value above 340p point to hope of further improvement in the City.

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