ii view: pubs group Mitchells & Butlers considers raising money

Shares for this hospitality company have halved over the last year. We analyse the latest news.

First-quarter trading update to 2 January

• Total sales down 67% year-over-year
• Cash balance of £125 million

Chief executive Phil Urban said:

"We are now in a third national lockdown. I am consistently impressed by the resilience and energy of our teams as we repeatedly open and close businesses that we have invested in to make Covid secure and urge the government to better understand the huge impact these restrictions are having on the hospitality sector. The Job Retention Scheme is temporarily protecting some employment but there is a real and pressing need for support for businesses themselves if we are to return to being the vibrant sector and important employers that we were.

“Mitchells & Butlers was a high performing business going into the pandemic and with the support of our main stakeholders I have every confidence that we can emerge in a strong competitive position once the current restrictions on us are lifted."

ii round-up:

Pub and restaurant group Mitchells & Butlers (LSE:MAB) is now considering an equity capital raise as uncertainty over its ability to trade through a third national pandemic lockdown persisted.

Total sales for the quarterly period to the start of January fell by 67% compared to the last quarter of 2019, while its cash balance now stands at £125 million – down from total liquidity of £225 million as of late November.

M&B shares fell by more than 7% in UK trading, leaving them down by around a half over the last year. Shares for rival Marston's (LSE:MARS) are down by just over 40% over the last year while shares for budget operator Wetherspoons (LSE:JDW) are down by around a third. 

Mitchells' management highlighted that no decision had yet been made with regards to the timing, size, or terms of any such equity capital raise.

Given the current closure of all its outlets, monthly cash burn had returned to the level of the last lockdown at approximately £35 million to £40 million before payment of debt servicing of £50 million per quarter.

The Birmingham headquartered company operates around 1,700 outlets, with its brands including All Bar One, O’Neills and Nicholson's. It previously announced 1,300 staff redundancies under measures to conserve cash and battle the pandemic. 

ii view:

Other group brands include Harvester, Toby Carvery, All Bar One, Miller & Carter, Premium Country Pubs, Sizzling Pubs, Stonehouse, Vintage Inns, Browns and Ember Inns. Along with its outlets in the UK, M&B also operates a small number of sites in Germany. Just over 80% of its pub and restaurant estate is freehold. 

For investors, the group’s strong selection of brands is worth remembering. As is the ongoing reduction in competition as other much smaller operators struggle under pandemic closures. But with M&B coming into the crisis not paying a dividend given its focus on reducing debt, today’s potential cash call does not come as a complete surprise. For now, while the rollout of vaccines does offer hope, investors might prefer more detail on any fundraising.

Positives: 

• Costs have been reduced
• May gain market share from the loss of rival smaller competition

Negatives:

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

The average rating of stock market analysts:

Buy