ii view: pub owner Mitchells & Butlers swings to a loss

Although up strongly since March, this hospitality company’s shares are still down by a half during 2020. 

Full-year results to 26 September

• Revenue down 34% to £1.48 billion
• Adjusted operating profit down 69% to £99 million
• Pre-tax loss of £123 million, down from a profit of £177 million
• No dividend payment
• Net debt unchanged at £2.1 billion

Chief executive Phil Urban said:

"Throughout a very uncertain and challenging year our businesses and teams have adapted quickly, creating a safe environment for guests and putting us in a strong position to benefit when consumers are able to eat out again. We saw direct evidence of this from a strong trading period in July and August before further restrictions came into force.

"With our great estate, balanced portfolio of brands and proven management team, we remain optimistic that we will be able to regain the momentum previously built and continue to achieve sustained market outperformance, when the current operating restrictions are eased. "

ii round-up:

Pub & restaurant group Mitchells & Butlers (LSE:MAB) today posted a better than expected fall in pandemic crushed profits, although was able to offer little comfort regarding the outlook. 

Profits stripping out exceptional items fell by 69% to £99 million, as sales for the year retreated by a third given closed outlets and ongoing Covid restrictions since late March. Analysts had been expecting a figure under £50 million. Including exceptional items, it fell to a loss of £123 million.

But total sales in the new financial year and including both outlet closures and the impact of the second lockdown wave had halved compared to this time last year. Group cash liquidity of £225 million, as of late November, was enough to keep the company operational for around four months if all its outlets stayed closed according to broker Morgan Stanley. M&B management believes many of its outlets will reopen from early December. 

Mitchells shares swung between gains and losses in UK trading, having gained by more than 70% since late March pandemic induced lows. The shares are still down by around a half year-to-date. Shares for smaller rival Fuller Smith & Turner (LSE:FSTA), which also reported results, are down around a quarter year-to-date. Budget operator JD Wetherspoons (LSE:JDW) has seen its shares fall by a third in 2020. 

The continued impact of the pandemic and the closure of some outlets had resulted in Mitchells announcing 1,300 staff redundancies. M&B operates around 1,700 outlets with its brands including All Bar One, O’Neill's and Nicholson's. 

The FTSE 250 company came into the crisis not paying a dividend given a focus on debt reduction. Group net debt stood virtually unchanged at £2.1 billion. Given previously adjusted banking terms, it earlier in the year agreed not to pay a dividend before the end of the financial year to September 2021.

Its next trading update is scheduled for January. 

ii view:

Mitchells & Butlers operates around 1,700 outlets, the majority in the UK with a small number in Germany. Just over 80% of Mitchell & Butler’s pub and restaurant estate is freehold. Its brands include Harvester, Toby Carvery, All Bar One, Miller & Carter, Premium Country Pubs, Sizzling Pubs, Stonehouse, Vintage Inns, Browns, Castle, Nicholson's, O'Neill's and Ember Inns. In addition, it operates Innkeepers Collection hotels in the UK. 

For investors, a decline in like-for-like sales, which has been better than the wider market according to the Coffer Peach business tracker, and new and flexible financing arrangements negotiated earlier in the year, offer reassurance. Its robust performance over July and August and including the government’s Eat Out to Help Out scheme also adds to the positives. But with the outlook still so uncertain and trading over coming months likely to be highly disrupted, M&B shares remain a higher-risk investment in the near-term. 

Positives: 

• August like-for-like sales rose
• New banking arrangements previously agreed

Negatives:

• Net debt of £2.1 billion
• Highly uncertain Covid clouded outlook

The average rating of stock market analysts:

Buy