Interactive Investor

ii view: strong brands but Mitchells & Butlers struggles

A reduced loss and a reduction in net debt at this major pub group. Buy, sell or hold?

3rd December 2021 14:05

Keith Bowman from interactive investor

A reduced loss and a reduction in net debt at this major pub group. Buy, sell or hold?

Full-year results to 25 September

  • Revenue down 28% to £1.06 billion
  • Pre-tax loss of £42 million, up from a loss of £123 million
  • Operating profit of £81 million, up from a loss of £8 million
  • Net debt down 19% to £1.27 billion

Chief executive Phil Urban said:

"Despite the inevitable challenges faced by our business over the past year we are now well positioned to regain the momentum previously built as we come out of the pandemic. 

“The trading environment remains challenging and cost headwinds continue to put pressure on the sector.  However, we have strengthened our balance sheet and returned to profitability and cash generation, allowing us to resume our capital plan and Ignite programme which will deliver sales and efficiency improvements to help combat these challenges."

ii round-up:

The Birmingham headquartered pub and restaurant group Mitchells & Butlers (LSE:MAB) operates around 1,700 outlets.

Its brands include All Bar One, O’Neills and Nicholson's.

Along with its outlets in the UK, it also operates a small number of sites in Germany. 

For a round-up of these latest results, please click here.

ii view:

Other group brands for this FTSE 250 constituent 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 

For investors, pandemic uncertainty remains. The discovery of the new Omicron Covid variant is a concern for all. Cost headwinds and staff shortages cannot be forgotten, and the dividend payment is still suspended as it concentrates on strengthening its balance sheet.  

On the upside, a clear recovery in trading has been seen over recent weeks. Ownership of around 82% of its property estate offers reassurance, while group net debt is reducing. An estimated price/earnings ratio of around 8 times 2023 earnings is also not overly demanding. In all, and given both a stable of strong brands and a consensus analyst estimate of fair value of over 350p per share, the shares might appeal to more speculative long-term investors. 

Positives: 

  • Diversity of brands
  • May gain market share from the loss of rival smaller competition

Negatives:

  • Uncertain Covid and economic outlook
  • Not paying a dividend

The average rating of stock market analysts:

Strong buy

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