ii view: Mitchells & Butlers shares hit reverse

Full-year results to 30 September

• Revenue up 13% to £2.5 billion
• Adjusted operating profit down 8% to £221 million
• Net debt down 3% to £1.63 billion
• No dividend payment

Guidance:

• Expects 3% cost inflation for the year ahead, down from 10% to 12% this time last year

Chief executive Phil Urban said:

“We are delighted by the continued strength of our trading performance, and resilience in the face of unprecedented cost headwinds.  We have achieved good growth in underlying profit, excluding government support, with like-for-like sales growth across all of our brands, and record outperformance against the market.”

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ii round-up:

Pub group Mitchells & Butlers (LSE:MAB) today detailed annual results broadly matching City forecasts, with cost headwinds expected to ease over the year ahead to around 3% versus 10-12% in 2023.

Adjusted full-year operating profit to the end of September fell 8% to £221 million, given both cost headwinds and the prior year’s pandemic related government assistance. Like-for-like sales for its most recent trading since late September rose 7.2% year-over-year, down from growth of 9.7% in the second half. 

Shares in the FTSE 250 company and operator of brands including All Bar One and Toby Carvery fell around 9% in UK trading having come into this latest news up 75% year-to-date. That’s in contrast to a 4% fall for the FTSE 250 index itself and ahead of a 60% gain for rival Wetherspoon (J D) (LSE:JDW) in 2023. 

Mitchells & Butlers operates 1,718 pubs, restaurants, and hotels mainly in the UK but also including some in Germany under its ‘Alex’ branded bars. 

Reduced energy prices and slowing food inflation now underpin management hopes to start to rebuild profit margins back to pre-pandemic levels and from the current adjusted 9% level. 

Significant cost headwinds and movement in its property portfolio valuation generated a full-year headline loss of £13 million compared to last year’s profit of £8 million. 

Group net debt fell 3% to £1.63 billion with the dividend, as expected, still suspended given its ongoing focus on reducing debt. 

ii view:

Started over 120 years ago, Mitchells & Butlers today employs over 50,000 people. The Birmingham headquartered company’s many brands include Nicholson’s, O’Neills, Browns and steak restaurant Miller & Carter. Food generates its biggest slug of revenues at 52%, followed by drink at 43% and services such as hotels under its Innkeeper brand the balance of 5%. Geographically, and outside of the UK, Germany generates just over 4% of sales.    

For investors, the ongoing cost-of-living crisis for M&B's customers in both the UK and Germany cannot be ignored, while costs generally for businesses and including wages remain elevated. Factors such as the weather can also hinder demand. Net debt of £1.63 billion compares to a stock market value of £1.3 billion, while a suspended dividend payment contrasts with a yield of around 2% at rival Fuller Smith & Turner Class A (LSE:FSTA). 

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On the upside, sales have recovered from the lows of the pandemic, and cost pressures such as those for energy and food are easing. A diversity of brands exists, management initiatives including a focus on costs under its Ignite programme continue, while a concentration on lowering debt looks sensible.  

On balance, and while some caution looks sensible, a price-to-net asset value of less than one may still indicate longer term value, with existing fans likely staying patient. 

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