Interactive Investor

ii view: glass half-full at All Bar One owner Mitchells & Butlers

A diverse portfolio of hospitality brands and easing cost headwinds. We assess prospects for this FTSE 250 company.

28th September 2023 11:53

by Keith Bowman from interactive investor

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Fourth quarter and full-year trading update to 23 September

Chief executive Phil Urban said:

"We are delighted to have continued our strong like-for-like sales performance through the fourth quarter, underpinned by volume growth and reflecting increasing out-performance against the market. 

“Going forward we shall remain focused on executing the drivers of this strong performance, our Ignite programme of growth and efficiency initiatives and our capital investment programme which, combined with our diverse portfolio of established brands and enviable estate locations, leaves us well positioned to continue to outperform the sector and see improved profitability."

ii round-up:

Pub group Mitchells & Butlers (LSE:MAB) today flagged expectations for full-year sales and profits to come in at the upper end of City hopes.

The owner of brands including All Bar One and Nicholson’s detailed like-for-like fourth-quarter sales to the 23 September up 9.7%, with cost growth expected to prove at the lower end of its previous 10% to 12% annual forecast range given easing food and energy costs. 

Shares in the FTSE 250 company rose by more than 2% in UK trading having come into this latest news up by more than half year-to-date. That’s similar to rival Wetherspoon (J D) (LSE:JDW) and comfortably ahead of a 5% loss for the mid-cap index itself so far in 2023. 

M&B operates just over 1,700 pubs and restaurants mainly in the UK but also including some in Germany. Like-for-like food sales for the final quarter gained 11.6% year-over-year, the same as the previous quarter, while drink sales rose 6.4%, marginally down from the prior quarter’s growth of 7.4%.

Mitchells, which also competes against other smaller stock market listed operators such as Fuller Smith & Turner Class A (LSE:FSTA) and Marston's (LSE:MARS), pointed to an increasing sales outperformance compared to the wider industry in the latest Coffer CGA Business Tracker survey. 

Full-year like-for-like sales have risen 9.1% compared to the prior full year, with total sales including new openings up 10.5%. Investments over the full year include 142 outlet conversions and remodels, including two at its newly acquired Ego brand. 

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

ii view:

Founded over 120 years ago, Mitchells & Butlers today employs over 40,000 people. The Birmingham headquartered company’s many brands include Toby Carvery, Harvester, Ember Inns and O’Neills. Away from its UK pubs, it also operates the Innkeeper's Collection of hotels as well as its Alex range of bars in Germany which last year accounted for around 4% of total sales. Food generates the company’s biggest slug of revenues at 52%, followed by drink at 43% and services such as hotels the balance of 5%.

For investors, accompanying management comments referencing the challenging macroeconomic environment and pressures on the consumer should not be overlooked. Concerns about the inflation outlook given recent rises in the oil price also warrant consideration, as does the lack of a dividend given management’s continued focus on reducing group debt.  

On the upside, sales remain robust, with cost pressures such as those for energy and food easing. A diversity of brands is held, management initiatives including a focus on costs under its Ignite programme continue, while a concentration on lowering debt is sensible.  

Despite the absence of dividend payments, M&B shares have done well over the past year as confidence in the business returns following an 18-month sell-off. A consensus analyst estimate of fair value at over 265p per share implies further possible upside, although a positive outcome is somewhat dependent on interest rates and the avoidance of recession which could further harm consumer demand.

Positives: 

  • Diversity of brands
  • Focus on reducing net debt

Negatives:

  • Uncertain economic outlook
  • Not paying a dividend

The average rating of stock market analysts:

Buy

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