ii view: pub group Mitchells & Butlers back in the black

Shares for this multi-branded hospitality group have performed better than Wetherspoon’s year-to-date. We assess prospects. 

First-half results to 9 April

• Revenue of £1.16 billion, up from £219 million last year
• Pre-tax profit of £57 million, up from a loss of £200 million
• Net debt excluding lease liabilities down 15% to £1.25 billion
• No dividend payment

Chief executive Phil Urban said:

“The fundamental strengths of the business remain, and we are well positioned to continue on our trajectory of recovery following the pandemic."

ii round-up:

Pub and restaurant group Mitchells & Butlers (LSE:MAB) reported a return to profit as it recovered from the pandemic, but cautioned with regards to cost headwinds going forward. 

The owner of chains including All Bar One and Nicholson's generated a profit of £57 million over the half year to 9 April, up from a £200 million loss in the prior pandemic-hit period. 

Mitchells & Butlers shares fell by more than 1% in UK trading having fallen by around 16% year-to-date coming into the numbers. Shares for rival Wetherspoon (J D) (LSE:JDW) are down by more than a fifth during 2022. The FTSE 250, of which both are constituents, is down by around 14%. 

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Mitchells' like-for-like sales over the latest second quarter period rose 3.8% compared to the same pre-pandemic 2019 quarter, leaving sales for the first half, and including the pandemic hindered festive period, up 1% versus the comparable period in 2019.

Looking forward, however, cost inflation headwinds particularly for utilities, wages and food, were flagged. Cost headwinds, based on the full year 2019 and a cost base of £1.8 billion, are expected to be in the region of 11.5% for the current year.

Adjusting for the return to VAT at 20% on food and non-acholic drinks, sales for its most recent five-week trading period following the results rose 2.2%.

ii view:

The Birmingham headquartered company operates just over 1,700 outlets. It 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, the cocktail of cost headwinds now being faced cannot be ignored. Elevated inflation and a cost-of-living crisis for its customers could also see them seeking alternatives such as takeaways or drinking at home. The dividend payment is still suspended as it concentrates on strengthening its balance sheet.  

On the upside, a recovery in trading from the Covid crisis is evident, a productivity and cost saving programme is being pursued, while group debt has been reduced and is now lower than before the pandemic. On balance, and given both a stable of strong brands and a consensus analyst estimate of fair value of over 300p per share, investors with a high tolerance for risk might watch for signs of recovery.

Positives: 

• Diversity of brands
• Reducing net debt

Negatives:

• Uncertain economic outlook
• Not paying a dividend

The average rating of stock market analysts:

Strong buy