ii view: Mitchells & Butlers growing faster than industry average

First-half results to 12 April

• Revenue up 4% to £1.45 billion
• Pre-tax profit up 24% to £134 million
• Continues to not pay a dividend
• Net debt including lease liabilities down 13% to £1.29 billion

Chief executive Phil Urban said:

"The strength of our first half performance is driven by continued focus on maximising the guest appeal of our diverse portfolio of brands to drive sales, supported by efficiency initiatives delivered through our Ignite programme of work. We are delighted with the like-for-like sales performance which continues to outperform against the market. 

“Notwithstanding a likely increase in cost headwinds next year, we have confidence that relentless focus on delivery of our strategic priorities will generate further value from our well invested and strategically located estate portfolio and compelling customer offers."

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ii round-up:

Pub and restaurant group Mitchells & Butlers (LSE:MAB) operates 1,723 sites in the UK and Germany of which 1,653 are directly managed.

The company'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 22 May, please click here. 

ii view:

Started with 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 this latest half-year at 54%, with drink at 43%, and services such as rents from unlicensed properties, a small balance of 3%. Geographically, Germany makes up just under 5% of sales. 

For investors, cost headwinds including increased UK taxes on workers employed and management concerns about higher food costs, cannot be ignored. Disposable consumer income remains pressured given elevated borrowing costs. The impact of unseasonal weather warrants consideration, while the suspended dividend payment contrasts with forecast yields of 1.6% or more at rivals Wetherspoon (J D) (LSE:JDW) and Fuller Smith & Turner Class A (LSE:FSTA).

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To the upside, sales growth continues to outpace the broader industry average. Management initiatives under the company’s ‘Ignite’ programme include a focus on costs. Investment in its estate increased to £92 million in this latest six-month period from £81 million a year ago, while a concentration on lowering debt at the expense of the dividend continues to look sensible. 

In all, and while risks remain, a consensus analyst estimate of fair value above 340p per share appears to suggest ongoing optimism in the City. 

Positives: 

• Diversity of brands
• Ongoing management efficiency programme

Negatives:

• Uncertain economic outlook
• Potential currency headwinds from German business

The average rating of stock market analysts:

Buy