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Mitchells & Butlers delivered a strong set of prelims, with LFL growth of +4.3%, 20bps of operating margin expansion, and deleveraging driving 17% EPS growth and a 10% increase in NAV to 476p per share. These results should reassure investors, with forecasts and momentum maintained despite the increase in costs following the budget. It is also worth noting that the company now has one of the strongest balance sheets in the sector, providing scope to accelerate investment while continuing to repay debt. Yet, on an CY26E EV/EBITDA of 5.9x, the stock trades toward the bottom end of the peer range. We see substantial upside and reiterate our BUY recommendation.
Mitchells & Butlers plc
Model update post FY25 results and UK Budget FY25 was a strong year for MAB with +6% EBIT growth to £330m (margin +20bp) and +17% adj EPS to 30.6p. While FY26 EBIT will be constrained by renewed inflation pressures (no better nor worse post Budget), with balanced and resilient volumes and solid top-line momentum into key Festive trading, our initial outlook may (again) be conservative. For FY26 we prudently model +1% adj EBIT growth to £332m on +3.9% LFLs, driving adj EPS +3% to 31.6p. We maintain our Buy. Managing a persistently inflationary backdrop In an uncertain UK macro backdrop, the +4.3% LFL sales growth delivered in FY25 stands out given its scale while also dealing with c.£100m cost inflation (and executing on £20m efficiency savings). While MAB will need to face a £130m or 6% increase in gross costs in FY26 (including c.£45m in F&B, of which beef c.£30m, £55m in labour costs and c.£30m in utility/central costs), we are reassured by its consistent execution behind its Ignite cost efficiency programs and likely incremental pricing to come. Our view With shares +15% ytd, MAB is trading on an unchallenging 9.0x cal.26 P/E and 6.1x EV/EBITDA, vs. sector on 10.4x/6.5x. The commitment to accelerate returns-enhancing refurbishments in FY26 should see capex step-up from £181m to c.£210m but underpins MAB’s outperformance of the wider flattish UK Hospitality market (8 week LFL +3.8%). Net debt/EBITDA of 1.8x/2.1x pre/post IFRS 16 leaves the MAB balance sheet in the best place for over a decade. While a refinancing and meaningful cash returns are unlikely for the next 2-3 years at the earliest, there is increasing scope for M&A.
EBITDA is up by 6% and net debt is down by 15% (both IAS 16) over the year. In theory, this should have added c.20% to equity value, yet the shares are down YoY, taking EV/EBITDA (IAS 17) from 6.5x in FY24 to 5.8x in FY25 and 5.1x in FY26E. NAV has risen to £4.76/share. Buy, 375p TP.
FY25 numbers slightly better than our forecasts In FY25 (ended 27 September), MAB reported revenue of £2,711m (+4.3% LFL growth), Adjusted Operating Profit of £330m, PBT of £238m and EPS of 30.9p on an adjusted basis. All of these numbers are slightly better than we had anticipated. Robust current trading, but headwinds again in FY26 The first 8 weeks of the new financial year started positively, with a 3.8% yoy increase in LFL (ahead of the market). The company anticipates c£130m of cost headwinds in FY26, or c6% of their cost base pre-mitigation. We do not anticipate material changes to consensus earnings for the current year.
Mitchells & Butlers^ (MAB, Buy at 256p) - FY25 beat with strong start to the new year. NAV up to 476p
Good trading momentum continues into FY26 MAB has reported its FY25 results with adj EBIT of £330m, +5.8% yoy, vs. consensus £327m (and the pre-close guidance in-line with consensus) and 30.9p adj EPS, +17% yoy. Having reported +4.2% 51wk LFL sales, the FY came in at +4.3% LFL (Q4 +3.2%) - trading in the 8 weeks to 22 November has been +3.8% LFL. With the cost inflation outlook reiterated post Budget, we don’t expect material changes to consensus EBIT (GBYe/consensus £330m) at this point though EPS could tick higher on lower leverage/net interest costs. Cost outlook reiterated post-Budget For FY26, the company is still looking to a gross inflationary outlook at this point of c.£130m (c.6% of the cost base), vs. c.£100m in FY25, of which c.60% is labour costs (and now does include MAB’s preliminary views on the incremental impacts of this week’s UK Budget – i.e. broadly neutral). For FY26, VA consensus currently has £2,817m sales, £330m EBIT and 30.7p adj EPS. Our view Shares are +5% ytd but are -12% since mid-summer over concerns around the UK Budget which in our view have now largely been assuaged. Despite the solid momentum, MAB now trades on just 8.4x cal.26 P/E and 5.9x EV/EBITDA – a discount to the sector on 10x/6.3x. While material earnings upgrades are unlikely today, given the unchallenging valuation, solid top-line delivery and confirmation of the cost outlook (albeit usually very conservative), MAB is our top pick in UK Hospitality.
LFL sales growth remains strong and ahead of the market, up +3.1% in Q4 and +4.2% YTD. We maintain our forecasts ahead of November prelims but see potential upside to FY26E, supported by the company’s consistent LFL outperformance and efficiency gains, despite ongoing inflationary pressures. Our estimates assume a 40bps EBIT margin decline to 11.7% in FY26E (vs. 12.1% in FY25E). The stock remains attractive, trading at 6.1x CY25E EV/EBITDA—a discount to peers (7.2x average) and to its 446p NAV—while delivering consistent trading outperformance and deleveraging. BUY
Rate of market outperformance continues in Q4 MAB has issued a trading statement for the 51 weeks to 20 September with LFL sales +4.2% (total sales +3.9%) - this compares to +4.5% LFL for 42 weeks with Q4 +3.1% (Q3 +5.0%). Despite the Q4 moderation, this remains meaningfully ahead of CGA-RSM UK Hospitality on +0.8% LFL for the 11 months ended Aug-25 (Pubs +2.6%). On outlook, the company is confident of a full-year outturn in line with consensus expectations (c.£325m at EBIT) and with gross cost inflation guidance for FY26 unchanged at c.£130m, we don’t anticipate any changes for FY26 either at this point (consensus EBIT currently c.£330m). Outlook maintained Management are “confident of a full year outturn in line with consensus expectations, reflecting a year of strong sales outperformance”. BBG consensus currently expects +4.4% LFL sales to £2,725m, £325m adj EBIT and 29.3p adj EPS. For FY26, the company is still looking to a gross inflationary outlook at this point of c.£130m (c.6% of the cost base), vs. c.£100m in FY25, of which c.60% is labour costs (and subject to some risks from the upcoming Autumn Budget). Consensus currently has £2,822m sales, £330m EBIT and 30.4p adj EPS. Our view Shares are +8% ytd but this still is an unchallenging valuation at 9.2x/8.7x cal.25/26 P/E and 6.3x/6.0x EV/EBITDA and a discount to the sector on 11x/10x P/E and 6.7x/6.2x EV/EBITDA respectively. Despite more muted summer trading across the industry, MAB continues to outperform in aggregate supported by its diversified portfolio across regions, occasions and price points. Investor sentiment towards UK Hospitality and SMID has been cautious into the Budget, we see MAB as a more resilient play on the UK Consumer with a strong track-record in managing inflationary cost pressures.
Our 2025E forecasts assume that LFL sales rise 4.2% and EBIT margins rise 14bps (1H: +70bps), resulting in just 44% of FY PBT being in 2H (vs 49% in 2024). On our 2026E forecasts, which we believe have upside, the EV/EBITDA (IAS 17) is 5.2x. The NAV is £4.47/share. Buy, TP 375p.
Strong LfL, as expected MAB’s pre-close trading statement, covering the 51 weeks ended 20 September 2025, showed that the company has maintained outperformance against the market in terms of LfL revenue, with “robust performances in mid-market pub and pub restaurants balanced against slightly weaker sales in London within the M25 and in more premium businesses”. LFL sales in the period were overall up 4.2% YtD, with total sales up 3.9%. The company continues to rollout cost saving initiatives. Outlook statement suggests no changes in FY25/26 consensus Outlook statement: MAB remains confident in FY numbers “in line with consensus expectations”. For next year, they continue to expect a higher level of overall cost inflation of around GBP130m (c.6% of cost base), as previously outlined, with potential to offset part of this via continued sales outperformance and the cost containment plan. Our numbers are in line with FactSet consensus (FY25E Adjusted EBIT of £326m vs consensus at £327m, FY26E of £326m vs consensus at £328m). A relatively strong player in a challenged space While the hospitality sector has been, and is likely to continue to be, seriously damaged by the 2024 Autumn Budget, we see larger and more structured operators able to overcome most of the headwinds. MAB is among them. The stock is trading on attractive multiples (8.4x/8.0x P/E and 6.2x/5.8x EV/EBITDA for FY26/27E) even in the context of the current uncertain outlook for pubs. BUY.
Mitchells & Butlers^ (MAB, Buy at 264p) - Slightly softer Q4 than hoped for but outlook unchanged
LFL sales for pubs were +1.2% yoy, vs flat for all managed outlets. The data reported on July 31st by CGA for managed hospitality groups in June shows that the market was flat yoy, due to a combination of mixed weather and tough comps (Euro 2024 men’s tournament took place in June last year). Within this context, pubs did outperform (+1.2%), while restaurants lagged behind (-0.5%) and bars kept drifting (-5.7%). Pubs have consistently outperformed other hospitality businesses for almost three years now, averaging +1.9% above the rest of the space since September 2022. Listed pub groups have reported better than the relative index. The recent trading season has seen JD Wetherspoon (Buy, TP 900p) reporting +5.1% yoy LFL in the 12 weeks to 20 July, Fuller’s (Buy, TP 750p) +5.0% in the 16 weeks to 19 July, Young’s (Buy, TP 1350p) +7.0% in the 14 weeks to 8 July, Mitchells & Butlers (Buy, TP 340p) +5.0% for the 14 weeks ended 19 July and Marston’s (NR) +2.9% in the 15 weeks to 12 July. All of these companies have therefore outperformed the remainder of the managed pubs over the past weeks, again confirming a long-standing trend. We believe this is due to the superior ability of these groups to manage their price/volumes mix compared to independents, which still represent c65% of total sites in the UK, we estimate. Cost pressures are high, but margins for larger operators can hold up. The government’s actions on labour costs, announced in Autumn 2024 and implemented in April this year, are expected to have a significant impact on the cost line for all pub operators, given how labour-intensive the sector is. However, all of the companies highlighted in this note have indicated some mitigating factors, both on the cost and on the revenue side, to reduce the impact of these measures on profits. As such, for all our covered stocks, we expect pre-tax profit margins to decrease only marginally in the current fiscal year, and to then recover progressively. We continue to see good value for listed pubs. YNGA looks the most attractive in the short term. Despite the difficult environment, all of the companies in our pubs universe of coverage benefit from high levels of freehold ownership, pricing power, focus on a specific customer groups and solid financials. While they all look fundamentally attractive, we see Young’s as the most appealing in the short term. At 6.7x EV/EBITDA FY26E, Young’s shares are trading at a hefty 42% discount to their historical 2010-2019 average (vs. JDW at a 10% discount, Fuller’s at 28%, Marston’s at 25%, Mitchells & Butlers at 15%). This is despite having reported the best LFL in the last earnings update, with the lowest leverage and highest margins in the space.
MAB JDW YNGA FSTA
Mitchells & Butlers’ Q3 trading update demonstrated consistent, strong LFL sales growth of 4.5% YTD. As a result, management expect a full year outturn at the top end of consensus expectations. This is supported by on-going investments (150 remodels) and Ignite efficiency gains to mitigate the step up in labour costs and reduce energy consumption. We were already towards the top of consensus (having upgraded in May) so today’s adjustments are modest but nevertheless mark a continuation of the upgrade trend. At 6.4x CY25E EV/EBITDA, the stock trades at a meaningful discount to peers (7.4x average) and to its NAV of 446p/share despite consistent trading performance and falling leverage. BUY
+5% 13 week LFL; +4.5% ytd MAB has issued its Q3 FY25 trading update with Q3 / 13 weeks to 19 July LFL sales +5.0% (42 week ytd +4.5%). By reported segment, 13-week Food LFLs were +4.9% with Drink +4.8%. With the continued strong trading momentum (and estate investments with 150 remodels ytd), management is “confident that this will lead to an outturn result for the current year at the top end of consensus expectations” – we are at the top-end of a £320-325m adj EBIT range as per VA, average £323m. While cost inflation remains an industry challenge (including into FY26 as previously highlighted by MAB), we expect to see at least low-single digit consensus upgrades today. Boosted outlook For FY25, we currently model +4.2% LFL sales to £2,714m, +4% adj EBIT to £325m, +8% adj PBT to £228m and +9% adj EPS to 28.5p. VA consensus expects £2,721m sales, £323m EBIT, £232m adj PBT and 28.9p adj EPS. Our view MAB shares are +18% ytd – despite this, MAB trades on just 10x/9.3x cal.25/26 P/E and 6.6x/6.2x EV/EBITDA, a discount to the sector on 12x/11x and 7.1x/6.6x respectively. As we continue to see positive LFL sales momentum, earnings estimates continue to rise (albeit with management typically conservative on initial guidance, especially on costs) and we would expect to see a closing of the valuation discount vs. peers.
Our 2025E forecasts now assume that LFL sales rise by 4.4% and EBIT margins rise by 10bps (1H: +70bps). On our current forecasts, the EV/EBITDA (IAS 17) is 6.2x, and falls to just 5.3x over the next two years on forecasts that we believe have upside. The NAV is £4.47/share.
Mitchells & Butlers^ (MAB, Buy at 289p) - Sunshine and further upgrades
The implied 18% CAGR in market cap through to 2030E assumes a CAGR of just 3.5% in sales vs 4.3% in costs pre-efficiencies/investments, or 3.3% post. The way the company has been outperforming in a polarising market suggests every chance that these assumptions could be exceeded.
M&B delivered robust 1H25 results, with LFL sales and margins exceeding expectations and guidance raised. Momentum has continued into the current trading period, with LFL growth accelerating to 6.0%. Supported by the ongoing success of its Ignite initiatives, this momentum puts the business in a strong position to offset labour cost pressures and temporary meat inflation. We raise our FY25E EBIT forecast by 3% to £324m and see scope for further upgrades. At 6.4x CY25E EV/EBITDA, the stock trades at a meaningful discount to peers (7.4x average) and to its current NAV of 446p/share despite consistent trading outperformance and falling leverage. BUY
Good momentum for FY25 but higher inflation for FY26 likely For H1 (28wk to 12 April), MAB delivered +4.3% LFL sales to £1,454m (on “broadly flat” volumes), +10% adj EBIT to £181m (margin +70bp yoy), +24% adj PBT to £134m and +24% adj EPS to 16.8p (9% vs. our 15.5p estimate). Following +3.9% LFL sales for the 15 weeks to 11 January, LFLs over Q2 were +4.7% (Food +3.6%, Drinks +5.1%). Over the last 10 weeks (inclusive of Mother’s Day and Easter), LFL sales were +6.0%. While there is upside to near-term consensus FY25 EBIT (now to be at top-end of a £312-322m EBIT range) given the recent trading momentum, the incremental cost guidance on FY26 is likely to limit further upgrades to FY26 (VA £323m EBIT). Cost Outlook more cautious for FY26 For FY25, MAB expects to deliver at the “top end” of consensus expectations (VA range at EBIT £312-322m). For FY25, we currently model +3.5% LFL sales to £2,712m, +3% adj EBIT to £322m and +8% adj EPS to 28.2p. VA consensus currently models +3.5% LFL sales to £2,710m, £315m adj EBIT and 27.9p adj EPS. Cost inflation guidance for FY25 is still expected at £100m (+5% yoy) pre-mitigation while the annualization of labour rates plus recently higher food costs (i.e. meat) will likely result in gross inflation of c.£130m, +6% yoy, in FY26. Our view Shares are +13% ytd – this leaves MAB trading on just 9.6x cal.25 P/E and 6.4x EV/EBITDA, still at a discount to the wider UK Hospitality sector on 12.0x/7.1x respectively. While the strong H1 delivery and recent trading momentum should be taken well, the incrementally cautious commentary on cost inflation for FY26 (albeit management are typically conservative and this is pre-pricing and other mitigations) could see shares give back some of the recent gains.
EBITDA (IFRS 16) is up 8% and net debt is down 17% over the past 12 months. We forecast EV/EBITDA (IAS 17) to fall from 6.1x to 5.2x over the next two years. NAV has increased from £4.28 to £4.48/share. Forecast changes are detailed on page 2. We maintain our 375p TP and Buy rating.
Mitchells & Butlers^ (MAB, Buy at 276p) - H1 above estimate; upgrades likely although cost outlook may weigh
Solid H1 and improvement in trading conditions H1 numbers (28 weeks ended 12 April 2025) showed revenue of £1,454m (up 4.2% yoy), driven by a 4.3% increase in LfL. Operating profit was up 10.4% yoy at £181m, driven by strong top line performance and continuous focus on cost containment. Net Debt was reduced to £860m, from £1,037m one year before. Over the most recent 10 weeks (including Easter and Mother's day), LfL have been up 6.0%. We note that: 1) the LfL increase in H1 seems to have been driven by price increases, and the company suggests that such price hikes have not had adversely impacted volumes; 2) LfL in the last 10 weeks are above industry levels as reported by CGA. Moderate increases to consensus figures expected MAB expects the market to remain "robust", and they believe they are well placed to continue to outperform the rest of the market. While still guiding to a full-year headwind of £100m on costs, driven almost entirely by labour costs, MAB expects full year operating profit to be at the top end of consensus expectations (range £304m-£322m, FactSet consensus £317m, INVe: £318m). This should imply a mid-single digit increase in consensus EPS based on FactSet data.
Last year PBT was +83% and net debt -15%. Our FY forecasts (£218m PBT), cons (£225m PBT), and 6.3x EV/EBITDA (IAS 17) assume almost a complete halt in the company’s momentum. Although guidance tends to be cautious, we believe the likelihood of further forecast upgrades is building.
Mitchells & Butlers^ (MAB, Buy at 217p) - Time to be bolder
Mitchells & Butlers likely resilient in a difficult environment: As discussed in our JD Wetherspoon note (see here), the consumer environment in the UK remains mixed. Pubs have proven more resilient than other eating-out venues. However, the number of closures remains high (another 1% of UK pubs shut down in 2024) and average transaction prices have declined (by 6% on average), in anticipation of the hit to the cost line that the Autumn Budget will bring as of April this year. MAB did quantify the impact of the Autumn Budget as c£65m on an annualised basis, which should drive the company’s cost inflation to c5% in 2025, meaning a total cost increase yoy of £100m. MAB should be able to absorb some of the cost headwinds: We generally prefer pub operators with a focus on a specific market segment rather than an all-encompassing model such as MAB. However, we believe the company can offset part of the cost headwinds with just a 4% yoy increase in LFLs for the year ending September 2025. This is not an overly ambitious expectation, and well supported by the 3.9% yoy already recorded in Q1 (above the overall index for managed pubs in the same period). Also, the company continues to roll out its Ignite programme which should further reduce the negative impact of labour cost increases. Current market multiples not reflective of earnings potential: MAB shares have lost c30% of their value since summer 2024, currently trading on 6.1x/5.7x EV/EBITDA for the years ending Sept’25 and Sept’26. As of Sept’24, the Net Asset Value of MAB’s properties stood at £4.4bn, 3.3x the current market value of the company. While recognising the difficult environment, the shares are trading at levels that, to us, look far too low.
A strong Q1 update reported +3.9% LFL sales growth with solid trading over the key three-week festive trading period (+10.4%). Mitchells and Butlers outperformed the sector albeit with slower trading in recent weeks due to cold and stormy weather. We continue to expect that £100m of cost headwinds in FY25E can be mitigated through strong sales momentum, and its focus on Ignite cost saving initiatives. We therefore leave our numbers unchanged. We expect continued profit growth and deleveraging to drive further value. Reiterate BUY, TP, 380p.
Strong demand over Christmas peak trading, softer exit-rate MAB has reported its Festive trading with LFL sales for the 8 weeks to 11 January 3.9% yoy – over the key 3 weeks of Christmas/New Year LFL trading stepped up to +10.4%, however weather has weighed on more recent demand. This compares to +4.0% LFLs for the 7 weeks to 16 November and is on a +7.7% comp. With the FY cost guidance outlook unchanged at c.£100m gross inflation, and demand likely to be muted in the next few months due to a later Easter, we expect limited changes to consensus today (FY25 EBIT: £320m GBYe, £314m VA consensus). Outlook unchanged The company is still guiding to c.£100m gross cost inflation for FY25, mainly a result of labour inflation (Living Wage, National Insurance), predominantly from April 2025. Despite this, they still aim to deliver continued profit growth (FY24 EBIT: £312m) and market outperformance in FY25. For FY25, we currently forecast +4.5% LFL sales, £320m EBIT (+3% yoy) and 27.7p adj EPS (+6% yoy). VA consensus is looking for £314m EBIT and 27.7p adj EPS. Our view MAB shares are -7% ytd following wider UK equities weakness – this leaves MAB trading on just 8x cal.25 P/E and 6x EV/EBITDA. The strength in demand over the key Festive season is reassuring that the consumer does still value the on-trade experience (also highlighted by Southern-focussed Fuller, Smith & Turner today), albeit they may be a bit more selective where and when they are spending. In the short-term, this should be a positive for Marston’s (Buy) ahead of their trading update on 21 January and for J.D. Wetherspoons on 22 January.
Mitchells & Butlers^ (MAB, Buy at 228p) - Toasting a strong Xmas
We believe our MAB efficiency gains and interest cost reduction forecasts for 2025E may prove over-cautious. The EV/EBITDA (IAS 17) is just 5.7x for a very well-run, high-quality 83% freehold national estate. Our 375p target price equates to 7.9x 2024E (7.0x 2026E). The NAV/share is 428p. We maintain our Buy recommendation.
Mitchells & Butlers^ (MAB, Buy at 234p) - Time for a refi?
The impact of the budget is in all our forecasts. The government is now under pressure to make concessions, such as reforming business rates. In addition, we believe our MAB efficiency gains and interest cost reduction forecasts for 2025E may prove over-cautious. The EV/EBITDA (IAS 17) is just 6.0x for a very well-run, high quality 83% freehold national estate. Our 375p TP equates to 7.4x 2026E EV/EBITDA, below the 433p/share NAV.
FY24 results were strong with margins and debt levels better than expected. FY25E has started well with an acceleration in LFL sales growth to 4.0% and ongoing Ignite efficiency initiatives putting the business in a strong position to tackle labour cost inflation. The recent UK budget adds c.£11m of unanticipated NI costs this year and so pauses the upgrade cycle for now and we leave our EBIT forecasts broadly unchanged, expecting £314m in FY25E and £320m in FY26E. We expect steady profit growth and on-going deleveraging to drive value, with additional scope for the stock rating to recover from current low level of 6.1x CY25E EV/EBITDA. BUY.
MAB has been on a strong upgrade cycle, which has paused to accommodate the employers’ NIC increase (£23m pa, of which the company expects to offset £13m pa). In our view, the equity (unchanged over the last year) should soon start reflect profit growth and debt reduction. We believe the 5.8x 2025E EV/EBITDA (IAS 17) is too low. We reiterate Buy and our 375p TP.
Mitchells & Butlers^ (MAB, Buy at 245p) - FY24 results strong, above estimate and ND below £1bn
4% EPS beat on FY24 MAB reported its FY24 results this morning with EBIT coming in at £312m, +38% yoy or +41% on a 52-week comparable basis (3% ahead of consensus £301.8m; vs. pre-close guidance of top-end of £285-320m range). Adj PBT was £211m, +84% yoy (consensus £199.4m) driving adj EPS 26.4p, +64% yoy (+4% vs. consensus 25.3p). LFL sales grew +5.3% in FY24 (Cons +5.3%) with momentum continuing at +4.0% LFL over the last 7 weeks to 16 November. Despite incremental labour cost inflation (c.£100m total in FY25), MABs continues to outperform the UK Hospitality sector and is confident in driving yoy profit growth, albeit the incremental c.£25m cost headwind from National Insurance annualised will likely leave consensus unchanged today. Outlook for FY25 unlikely to change For FY25, VA consensus currently has LFL sales growth of +3.4%, net sales £2.77bn, operating income £317.6m and 28.0p adj EPS. We model +4.5% LFL sales with adj EBIT +3% yoy to £320m and +5% adj EPS to 27.7p. For FY25, cost inflation is now expected at c.£100m, or 5% of the current cost base, mainly in labour with steady energy and food and drink inputs – ahead of the Budget, MAB had guided to c.£90m gross cost inflation for FY25. Our view Shares are -5% ytd despite consistent earnings upgrades with MAB now trading on just 8.6x calendar 2025 P/E and 6.1x EV/EBITDA vs. the sector on 12.7x and 7.0x respectively. Overall, this another solid FY24 results from MAB’s which we expect will be well received by the market. Though we are unlikely to make changes to our FY25 forecasts just yet, we do see upside potential to estimates should industry-wide incremental pricing come through from early 2025.
Solid FY24 results Revenue benefited from 5.3% LFL increase in sales yoy, and total revenue was at £2,610m. Adj Operating Profit came in at £312m, up 41.2% yoy, and EPS was at 25p. The company indicates that not only were LFL ahead of the CGA tracker, but all market segments showed positive performance. LFL also strong in first few weeks of FY25, c£100m cost increases LFL sales were up 4% yoy in the first seven weeks of FY25, again beating the CGA tracker. The company indicates c£100m of cost increases in FY25 vs FY24 (INVe - we expect altogether c£80m additional opex), with the biggest impact coming from the Budget. There is no indication as yet on whether (or how) the company intends to mitigate that.
FY24 results preview – 27 November We update our MAB model ahead of its FY24 results on 27 November. For the 8 weeks to 21 September, MAB delivered +2.5% LFL sales (Food +2%, Drink +3%) for 51-week sales +5.2% LFL (+5.9% yoy). Having already raised guidance for FY24 EBIT to the top-end of a £285-320m range, we model £305m EBIT (+35% yoy) on margins +260bp to 11.6%. This should deliver 25.4p adj EPS, +57% yoy. With industry LFLs still at +1-2% (October +0.6%), MAB can sustainably grow 3-4%+. Despite sector-wide fears regarding renewed high-single digit labour cost inflation from April 2025 following the recent UK Budget, we believe MAB is well placed to continue to deliver profit growth yoy in FY25. FY25 outlook Ahead of the UK Budget, MAB had already been guiding to c.£90m gross cost inflation for FY25, following c.£55m realised in FY24 (pre savings/mitigations). We estimate that the changes to National Insurance will cost an incremental £30m annualised, but this should be offset by additional 1-2% industry-wide pricing. For FY25, we model +4.5% LFL sales with adj EBIT +5% yoy to £320m and +9.4% adj EPS to 27.7p. Our view Post-Budget, MAB shares have given up all their gains and are now -7% ytd, despite very strong earnings momentum. This leaves the stock trading on just 8.6x cal.25 P/E and 6.1x EV/EBITDA. With its diversified portfolio across regions, occasions and price points, MAB is well positioned to continue outperforming the wider UK Hospitality sector by c.300bp over the mid-term with deleverage momentum potential bringing cash returns back to the table during 2025.
Continued sector outperformance combined with strong cost control should see earnings at the top end of consensus for FY24E. We upgrade forecasts once again, increasing EBIT by 8% to £310m while cautiously leaving FY25E unchanged ahead of next month’s Budget. The stock currently trades on 7.2x CY24E EV/EBITDA, at the bottom of the pub sector range. We believe earnings momentum can be sustained, which alongside a re-rating, should continue to push the shares higher. Reiterate BUY.
We believe our revised 2024E forecast of 77% PBT growth is a little cautious; our unchanged 2025E forecast of minimal growth reflects the unclear macro backdrop. Overall, this may prove over-cautious, leading to further upgrades, on which basis we believe the 7.0x 2024E EV/EBITDA (IAS 17) and 6.6x 2025E is very attractive. Reiterate Buy, TP 375p.
MAB releases strong trading statement for the 51 weeks ended 21 September Despite the easing of the inflationary environment, unfavourable summer weather, and the riots in some city centres in August, Mitchells & Butlers’ LFL were up 2.5% in Q4, and 5.2% YtD. Total revenues were up 5.9% yoy (INVe: 5.4%). FY result expected at the upper end of consensus The company is confident it will achieve FY results “at the upper end of consensus”. We currently forecast £199m in pre-tax profit, with the top end of consensus standing at £215m (according to FactSet), which implies c8% upside to our current forecasts.
Mitchells & Butlers^ (MAB, Buy at 297p) - Momentum continues; further upgrades
Slowing down in Q3 due to lower inflation For the 42 weeks ended July 20th (i.e., first nine months of MAB’s financial year), the company reported LFL sales growth of 5.7%, with all brands showing positive evolution. Total sales in the year to date have gone up 7.3%. In the 13 weeks to 20 July, there has been a slowdown in LFL to 3.4% (or 4.2% excluding the Easter impact, which fell in the company’s first half this year), which is explained primarily by an improved inflationary environment which has allowed the company to ease the level of price increases. The bad weather conditions have also impacted LFL growth, which still remain ahead of the CGA tracker. No changes expected to consensus figures for FY24 MAB’s management reiterated its guidance of net cost headwinds in the region of £55m for FY24, mainly driven by labour, compensated by deflation in energy and a slowdown in food cost inflation. This, together with sales growth, allows improving margins and means that the company remains “very confident in the delivery of full year consensus expectations”. Our forecasts are broadly in line with consensus figures (FactSet: £433m EBITDA and 24p EPS for FY24).
The Q3 trading update confirmed that the business is on track to meet expectations with continued sales growth ahead of the market and margins rebuilding. LFL sales growth is running at 4.2% in Q3, when adjusted for Easter, and 5.7% YTD - in line with our forecast which we leave unchanged for now. However, we believe there is scope for upside with our EBIT forecast of £288m based on 200bps margin improvement against 390bps improvement reported in 1H24E. Despite a strong run, the shares remain attractive on 7.6x EV/EBITDA for CY24E. We roll forward our valuation, increasing our TP to 380p (from 330p) with further profit growth and debt reduction supporting further share price momentum.
The slowdown in LFL sales (from 1H’s 7.0%) was expected. MAB’s profits are usually 2H-weighted, so having achieved 57% (£108m) of our FY PBT forecast (of £190m) in 1H, forecasts are robust against a backdrop of soft weather comps in 4Q. With the rating at 6.9x 2025E EV/EBITDA, we are raising our target price from 340p to 375p.
Mitchells & Butlers^ (MAB, Buy at 301p) - Continued robust trading, tracking modestly above forecasts
We expect LFL sales to have slowed in 3Q, in line with the food-led pub sector owing to its aversion to dire weather and good football. However, MAB was already trading ahead. In an average year, 45% of PBT occurs in 1H. This year, the company achieved 57% (£108m) of our FY PBT forecast (of £190m) in the first half, and our forecast is above consensus (£186m).
Strong H1 bodes well for Summer 2024 We update our MAB model following its recent strong H1 FY24 results. Though shares are +19% ytd, valuation on 12x/10.8x cal. 2024/25 P/E with strong earnings and cash flow/deleverage momentum remains compelling, especially ahead of what promises to be good summer trading for UK Hospitality. We increase our FY24 EBIT/EPS by +7%/+11% and by +4%/+5% for FY25. On our higher forecasts, and rolling forward our valuation to FY25 estimates, we increase our price target to £4.00. Forecast drivers FY24 With just £18m of the c.£55m anticipated net cost headwinds for FY24 realised in H1, margin expansion in H2 is likely to be more constrained by incremental labour inflation following April’s national living wage increase. We model +5.5% LFL sales for H2 which, with the 53rd week comp and 3% aggregate inflation, drives EBIT +6% yoy to £134m (margin +40bp) and EPS +4% to 11.0p. For FY24, we model £298m EBIT (+32% yoy) and 24.5p adj EPS (+52% yoy). On top of organic capex (c.£180m FY24), with the recent Ego and Pesto acquisitions, MAB is also back growing its estate and investing in premium concepts to support top line/margins. FY25 outlook As we look into FY25, the overall operating backdrop is favourable with still moderating inflation and increased consumer confidence (off a low base) underpinning solid top-line demand. The £90m gross cost inflation guidance for FY25 (mainly labour) could also be conservative. We model +4.4% LFL sales growth with EBIT +8% to £321m, finally ahead of FY19 £317m.
Mitchells & Butlers^ (MAB, Buy at 298p) - Bigger profits, bigger value
H1 performance paves the way for FY24-25E earnings upgrades. For H1 2024, MAB reported LFL sales up 7% yoy (above industry levels), and Operating Profit up 64% yoy, due to abating cost inflation. Our updated forecasts factor in a slowdown in LFLs in FY24E (+c5% on a yearly basis, meaning +c3% in H2). This is rather conservative, we believe, given some potentially trading-enhancing events in H2 (Euro 2024, the Olympics). Also, for FY24, MAB guides for energy costs to decrease and to lower than previously expected cost inflation across the board. This means guidance for a <3% yoy increase in opex (about £55m higher than last year’s, versus the previous indication of c£65m higher). Taking those elements into account, we have raised our Operating Profit forecast to £299m for the current year (a +6% upgrade and +32% yoy). The bulk of energy cost reduction took place in H1, which explains Operating Profit being up 64% in H1 and +32% in FY24E. This results in a 9.5% upgrade in FY24E Adj. EPS. We have raised FY25-26E Adj. EPS to a much lower degree, but flag that MAB’s balanced mix of pubs catering to different customer groups, as well as its conservative pricing policy, could allow for further positive earnings surprises. Stock performed strongly, but multiples remain undemanding. Continued earnings upgrades over the past year have driven the shares up 45% in 12 months. We believe there is still more to come in light of further fundamental upside (we see 15% potential to our DCF-calculated TP), the clear path to debt reduction and undemanding market ratios.
LFL sales growth outperformance continues as inflation falls leading to a better-than-expected margin outlook with full year expectations towards the top end of the range (EBIT £267.0m – £289.8m). We increase FY24E EBIT by 4% to £288m. While the reduction in industry supply is helping, credit should be given for the operational improvements and ongoing innovation being driven across its well-balanced, well-invested, highly diversified, freehold-backed estate. The shares trade on 7.2x FY24E EV/EBITDA, vs the sector on 8.5x, despite maintaining earnings momentum and materially deleveraging. Reiterate BUY with TP 330p (up from 310p based on 8.0x FY24E EV/EBITDA).
EBITDA (IFRS 16) is up 38% and net debt is down 13% over the last 12 months. We project a continuation in these trends to reduce the EV/EBITDA (IAS 17) from 7.0x to just 5.8x over the next two years, in addition to which there is plenty of potential for the company to improve margins. We reiterate our Buy rating and 340p TP.
Mitchells & Butlers^ (MAB, Buy at 266p) - H1 up strongly, upgrades and accelerated deleveraging
Mitchells & Butlers plc JTC Plc
Mitchells & Butlers^ (Buy (from Hold) at 248p) - More than a mirror on energy
Estimate changes: Mitchells & Butlers PLC (MAB.L, Price 270p - Buy - TP: 300p)
Strong Q1 update reported LFL sales of 7.7%, with an acceleration over the second half of the period. This was driven by strong food and drink sales across its broad portfolio and supported by its investment and initiative programmes. Costs pressures are abating, and the company now expects a full year outturn towards the top end of expectations. We are already there with EBIT of £276.2m for FY24E (consensus range £255m-£290m) so leave our numbers unchanged today but margin upside remains. Reiterate BUY, TP 310p.
Strong Q1 trading prompts forecast u/g - First Look
Driven by EBITDA growth and debt reduction, we project EV/EBITDA (IAS 17) to fall from 7.2x to 6.1x over the next two years. In addition, we believe there is further upside on sales and margins. After all, management recently said MAB is “well positioned to rebuild margins back towards pre-pandemic levels”; in comparison to which our upgraded forecasts have EBIT (IAS 17) margins growing from 8.3% in 2023 to 10.2% in 2026E vs 14.2% in 2019. We raise our TP from 300p to 340p and reiterate Buy.
Mitchells & Butlers^ (MAB, Hold at 251p) - Trading remains robust in Q1; upgrades likely
Estimate changes: Mitchells & Butlers PLC (MAB.L, Price 229p - Hold - TP: 230p)
M&B seems confident that sales momentum has returned to the business and that price increases can now start to exceed cost inflation as the latter recedes. In that context, with small earnings upgrades and a discount valuation (0.6x NAV) we retain a high conviction Buy.
Another encouraging set of results, with prelims coming in at the top end of expectation and a ‘renewed level of confidence’ in the outlook. Current LFL sales of +7.2% remains strong and ahead of the market and there are clear signs of cost pressures abating. FY24E cost headwinds now expected to c£65m (vs c£80m previously and despite NLW), with a path to pre-Covid margins emerging. We make minor adjustments to our forecasts but expect consensus to drift up towards our FY24E operating profit estimate of £276m. The shares are up 60.6% YTD (despite yesterday’s pull back of 8.6%), and remain highly attractive on 6.5x CY24E EV/EBITDA. Reiterate BUY
M&B’s FY22/23 performance was slightly stronger than AV and the market’s expectations. Adjusted operating profit and EPS were ahead by c.2.5% and c.11%, respectively. While the publican sustained lfl momentum during the FY23/24, the stock price is down 8% as we write. Investors may have been spooked due to stronger cost headwinds for the FY23/24 and the £131m impairment on properties during the FY22/23. We see today’s share price decline as an over-reaction. We will improve the financial estimates slightly but maintain our cautious recommendation.
FY23 adjusted numbers broadly in line, a few one-off charges Revenue in FY23 (ended 30 September) came in at £2,503m, above our (£2,398m) and FactSet consensus expectations (£2,417m), with a 9.1% yoy increase in LFL sales. Adjusted operating profit came in at £221m, also well above our and consensus figures (INVe: £202m, FactSet £216m), and profit before tax on an adjusted basis was £115m (INVe: £106m, FactSet: £104m). Reported earnings however were a net loss, due to £131m of separately disclosed items, mainly relating to valuation and impairment of freehold and long leasehold sites. Net debt came in at £1,633m (INVe: £1,638m). LFL sales up 7.2% since period end Since beginning of October, MAB LFL sales have risen 7.2% yoy, which compares favourably with the +5% (October data) recorded for managed pubs in the UK according to the CGA tracker. As a reminder and looking at the pub operators which have reported results in the past weeks, the best LFL performance remains that recorded by JD Wetherspoon (+9.5% LFL yoy in the 14 weeks to 5 November). Importantly, MAB has indicated that volumes were stable in the period. For FY24, the company guides that accounting for the increase in National Living Wage (up 9.8% as of April 2024) and the lower energy and food cost inflation, it expects to experience cost headwinds of £65m (INVe: £68m).
Mitchells & Butlers plc J D Wetherspoon plc
Driven by EBITDA growth and debt reduction, we project EV/EBITDA (IAS 17) to fall from 7.4x to 6.2x over the next two years. In addition, we believe there is upside on sales and margins. Management says the company is “well positioned to rebuild margins back towards pre-pandemic levels”; in comparison our consensus-matching forecasts have EBIT (IAS 17) margins growing from 8.3% in 2023 to 10.1% in 2026E, vs 14.2% in 2019. We raise our target price from 275p to 300p. Buy.
Mitchells & Butlers^ (MAB, Hold at 242p) - FY23 FY ahead, robust trading continues
Estimate changes: Mitchells & Butlers PLC (MAB.L, Price 213p - Hold - TP: 215p)
M&B’s Q4 FY22/23 trading performance was stronger than the street’s expectations. Lfl sales grew 9.7% yoy (+200bp vs the consensus), once again witnessing positive momentum in both the drinks and food segments. The company continued to gain market share. The cost headwinds are also expected to come at the bottom of previous guidance. We expect the sales momentum to continue during FY23/24. We are likely to increase the target price by around 10%.
Upgrades on strong year end; Buy case intact
Another round of upgrades as M&B continues to outperform the market with Q4 LFL growth of 9.7% and 9.1% YTD. With costs abating, the margin outlook is also improving aided by a multitude of Ignite initiatives. We increase EBIT by 5% to £216m in FY23E and 8% to £274m in FY24E with headroom for more as margins build back towards pre-covid levels. Despite being up 56% YTD, the shares remain attractive on 6.4x FY24E EV/EBITDA. Reiterate BUY.
Mitchells & Butlers^ (MAB, Hold at 215p) - Continued robust Q4 momentum points to further upgrades
Driven by EBITDA growth and debt reduction, we project EV/EBITDA (IAS 17) to fall from 8.5x to 6.4x over the next two years. An 8.3x ratio, in line with the historic average, would equate to a share price of £3.30 in 2025E. The NAV is £3.68/share. We reiterate our Buy recommendation and raise our target price from 250p to 275p.
Meeting Notes - Aug 17 2023
MAB BGEO WPP KSP 9L2
More benign costs, eliminated pension risk and short term trading represent positives across near-term and long term timeframes and with the shares trading on an FY25 P/E of 8.1x (10% adj FCF yield) we reiterate our Buy recommendation.
M&B’s trading performance in Q3 FY22/23 was ahead of our expectations. The group’s lfl sales grew 9.7% yoy, with a robust contribution from both drinks and food businesses (+11.6% and +7.4%, respectively). The performance looks quite close to near competitors like Marstons and JDW. Investors are likely to reward the easing cost pressure plus the management’s expectation to achieve the top end of current consensus, with continued momentum in FY23/24. We will improve our financial estimates and target price.
M&B’s trading performance continues to impress, with LFL sales growth accelerating from +8.5% in H1 to +9.7% in Q3 2023. Top line growth is accompanied by an increasingly positive input cost outlook. Management now guiding for earnings at the top of consensus, and for margins to start building back towards pre-covid levels from next year. With an ever-improving outlook, we increase EBIT forecasts by 5% to £206m for FY23E and by 8% to £255m for FY24E. Pension and refinancing updates further reduce uncertainty. Shares are attractive, trading on CY23E EV/EBITDA of 8.3x, supported by further upgrade potential. We reiterate BUY and raise our TP to 310p (from 250p).
M&B’s LFL were up 9.6% yoy in Q3 Food LFL were up 11.6% yoy in Q3 (ended 22 July), and drinks were up 7.4%, for a blended average of +9.7% yoy. Year to date, LFL have now been up 8.9%. Importantly, the company flags that LFL sales have gone up 10% vs FY2019, driven by spend per head. FY23 expected to be at the top end of consensus figures Company flags that cost inflation is starting to abate, and they therefore expect their FY23 yoy operating cost increase to be at the bottom of the guided 10%-12% range. This means that the company is confident it will report FY numbers at the top end of consensus expectations. With £202m of Adj EBIT, we are in line with consensus. According to FactSet, the highest consensus figure for FY23 is £210m. Note that we already factor in c10% of cost inflation this year (i.e., where company now expects to be) but are quite conservative on top line/LFL evolution. Positive read-across for the whole pubs industry These are the most current set of LFL numbers reported in the pubs space and the trend shown by MAB in recent weeks is strong, while the confirmation that the cost outlook is improving is another positive for the entire industry.
Driven by EBITDA growth and debt reduction, we project EV/EBITDA (IAS 17) to fall from 9.1x to 6.8x over the next two years. An 8.3x ratio, in line with the historic average rate, would equate to a share price of £3.10 in 2025E. The NAV is £3.68/share. We reiterate our Buy recommendation, and raise our target price from 240p to 250p.
Meeting Notes - Jun 16 2023
MAB KSP CMCX CRST BPT MER
We see a golden patch ahead for M&B for the first time in a number of years - obstacles such as its pension deficit, hedging loss and the pandemic now look to be in the rear-view mirror. In this note we focus on the outlook for costs and outline an upside case for EPS of 31p on which the busine
Mitchells & Butlers^ (MAB, Hold at 216p) - Greater cash flow key to unlocking value
H1 numbers showing stronger than expected LFL. In H1 of the year ending September 2023 (six months ended on April 8), MAB reported a 10.6% increase yoy in revenues, to £1,282m, driven by 8.5% LFL sales in the period. Those LFL were both ahead of consensus expectations and ahead of main peers (i.e., the Coffer Peach Business Tracker), and, crucially, a good mix of price and volume increases. The strength in trading has continued in the first weeks of H2, with an 8.9% increase yoy in LFL sales. Cost inflation expected to abate in H2. With cost inflation headwinds in food and supply chain likely to decrease in coming months, and energy prices well below their peaks at the end of 2022, the Company is now guiding to its cost base going up in FY23 “at the lower end of the 10%-12% range” that it had previously targeted. Also, management indicated that H1 results and trading momentum “provide confidence that we are tracking ahead of…previous expectations in both the short and the medium term”. We have materially upgraded our earnings (and PT): Based on H1 results, we have upgraded our sales/EBIT/EPS by 3%/11%24% in FY23E, 3%/9/16% in FY24E and 2%/3%/5% in FY25E. Also, our DCF-based target price now increases to 215p (vs 140p previously). With the share price having already increased by c35% in 3 months, and in line with our (revised) PT, we maintain our neutral rating. While we usually prefer pub companies managing a single brand with a consistent offer, we acknowledge that the width and depth of MAB’s brands, which cater to a wide range of customers, has proven a competitive advantage in delivering industry-beating LFL numbers. Should MAB’s LFL come in at 8% yoy in FY23 (vs our currently estimated 6.5%), we would see a 9%/19% increase in our FY23E EBIT and EPS, respectively.
M&B continues to trade ahead of the market, recording YoY LFL sales of +8.5% in 1H23E, and +8.9% in the last six weeks. Top line growth is accompanied by early signs of inflationary pressures abating, particularly energy, with cost inflation for FY23E now expected to be at the lower end of the previous 10-12% guidance. The outlook is improving and tracking ahead of management expectations. We increase operating profit forecasts by 3% to £195m for FY23E and by 10% to £236m for FY24E, and lift our TP to 250p (from 205p). Deleveraging also continues, giving M&B one on the best credit ratings across the national pub chains. Shares are attractive, trading on CY23E EV/EBITDA of 8.6x, BUY.
M&B’s H1 FY22/23 performance was weaker than our expectations. The Group’s lfl sales growth of +8.5% yoy was 200bp below our estimates. Adjusted EBIT declined by 16.7% to £100m (-5.5% vs our expectation). The company continued to gain market share. For FY22/23, the management expects cost headwinds to be at the lower end of the 10-12% range on the cost base of £1.8bn. Lastly, the company expects the cost outlook to improve in the medium term. We will trim our financial estimates slightly.
H1 EBIT of £100m was in line with NUMe but more than half current consensus forecasts for the year despite being the seasonally weaker part of the year. Positive sales momentum (+8.9% lfl 2Htd), an easier cost environment and stronger FCF support double-digit upgrades to FY23 and FY24 forecasts tod
Driven by EBITDA growth and debt reduction, we project EV/EBITDA (IAS 17) to fall from 8.6x to 6.3x over the next two years. An 8.3x ratio, in line with the historic average, would equate to a share price of £3.10 in 2025E. The NAV is £3.68/share. We raise our TP from 200p to 240p, Buy.
Mitchells & Butlers^ (MAB, Hold at 195p) - Resilient interim results, scope for upgrades
Strong H1 numbers reported H1 numbers for MAB showed LFL sales up 8.5% yoy, with volume growth experienced in both food and drink. Revenue £1,282m (HY 2022 £1,159m), Operating profit £99m, Profit before tax £40m. Net debt reduced to £1,193m, excluding £467m of IFRS 16 lease liabilities. The Company says that “costs remain a challenge but medium-term cost outlook is now improving”. Good momentum continued in past six weeks The positive trends experienced in H1 have continued since the period end with trading over the past six weeks delivering LFL sales growth of 8.9%, including the benefit of the Easter weekend in both years and all at full rates of VAT. The Company sees cost inflation headwinds across the supply chain starting to abate, especially in energy and food. Consensus numbers likely to be upgraded With the company stating that they are “tracking ahead of management’s previous expectations in both the short and the medium term”, we expect double digit EPS consensus increases for FY23 and FY24.
Mitchells & Butler’s recent trading update pointed to an encouraging start to the financial year, whilst the mood music around the UK consumer appears increasingly less bearish. We keep our full year estimates unchanged, we believe requiring only modest growth for the balance of the year, whilst the fall in energy prices suggest cost pressures could be towards the lower end of guidance. A resolution of the pension appears near, and with cash flow set to improve opens up the tantalising prospect for a refinancing of the securitisation vehicle in the medium term. On 7x EBITDA, we see this as a potential game changer for the valuation, although we question whether M&B would stay independent for long.
M&B’s trading performance for Q1 FY22/23 was stronger than our expectations. The group’s lfl sales grew by 10.4% yoy, with strong contributions from both the food and drinks businesses. Although the recent five weeks (festival period) witnessed stronger momentum, this was on a softer comparable base. While we expect M&B’s lfl growth to remain ahead of that of the competition, profitability is likely to be under increased pressure as inflationary headwinds are unlikely to ease in the near-term. We maintain our positive stance on the stock.
M&B delivered strong trading over the festive period, +8.5% LFL in the 5 weeks to 7 Jan vs FY19, impressive given the disruption caused by rail strikes and relative exposure to city centre/urban areas (c23% of the estate). This reinforces the resilience of the top line moving forward, helped by the balance and breadth of the estate. Several efficiency initiatives are underway to combat inflationary pressures, and we maintain that profits should push forward when industry-wide inflation eventually moderates. Further good news was the completion of the triennial valuation that moves it to an actuarial surplus from a £293 deficit in FY19, which should see an end to the annual top up payment of c£40m, freeing up cash to accelerate the net debt reduction process. We leave forecasts unchanged but note earnings risk now swinging to the upside. BUY
Debt reduction remains key to the investment case, in our view. In the EV, we include any deficit in the pension, which has now moved into surplus. On our forecasts, EV/EBITDA (IAS 17) is projected to fall from 8.5x to 6.6x over the next two years. An 8.3x ratio, in line with the historic average rate, would equate to a share price of £2.56 in 2025E. The NAV is £3.61/share.
Big Technologies, rockSHOT, Model Portfolios December, Early Cycle Indicator, Mitchells & Butlers, SigmaRoc, Marston's, Gemfields, CT Automotive, Market Highlights
MAB SRC MARS GML CTA PHP
Big Technologies, rockSHOT, Model Portfolios December, Early Cycle Indicator, Mitchells & Butlers, SigmaRoc, Marston's, Gemfields, CT Automotive, SMID Market Highlights
LFL sales growth is now tracking ahead of the industry at 6.5% vs 2022 or 9.2% vs 2019 over the last 10 weeks. This is helped by the more recent recovery in city centre sites and drinks sales, demonstrating the balance and breadth of the estate. However, inflation is expected to run higher at 10-12%, but with Ignite efficiencies helping to mitigate around two thirds of this. We upgrade FY23E forecasts by 18% to account for higher sales and mitigation but leave future years broadly unchanged. The shares are attractive on a CY23E 7.3x EV/EBITDA, with a NAV of 359p. The top line is resilient, and profits should push forward when industry-wide inflation eventually moderates. BUY
M&B has announced a stronger-than-expected end to FY21/22 with adjusted EBIT and EPS some 7.5% and 19% ahead of the street’s expectations. The UK based publican has also clocked a strong start to the new financial year (+9.2% as compared to the corresponding pre-pandemic period). We continue to expect the group’s volume and profit margins to be under pressure over the near-term. Positive stance reiterated on the stock.
Debt reduction remains key to the investment case, in our view. On our revised forecasts, we project EV/EBITDA to fall from 7.9x to 6.1x on an IAS 17 basis over the next two years. An 8.3x ratio, in line with the historic average rate, would equate to a share price of £2.56 in 2025E. The NAV is £3.61/share.
Trading well; utilities the key unknown
Issuer Sponsored DESTINY PHARMA+ (DEST, HOUSE STOCK, at 33p) – Confirmation XF-73 will target a large market opportunity FERRO-ALLOY RESOURCES+ (FAR, House Stock, 13.6p) – Drilling update MUSICMAGPIE+ (MMAG, HOUSE STOCK at 26p) - Strong year-end, FY22 in-line with expectations; FY23 forecasts retained TOUCHSTONE EXPLORATION+ (TXP, 56p, House Stock) – c.US$13m UK and Canadian fundraising confirmed. FTSE 100 GSK^ (GSK, Buy at 1,388p) - Zantac cloud begins to part following positive MDL outcome FTSE 250 C&C GROUP^ (CCR, Buy at 175p) – Distribution delivering, brands to follow? MITCHELLS & BUTLERS^ (MAB, Hold at 145p) – FY results: Nice beat on profit and robust start to FY23 SUPERMARKET INCOME REIT^ (SUPR, Hold at 107p) – One to keep on the shopping list AIM KEYWORDS STUDIOS^ (KWS, Hold at 2828p) – Fairly priced …
MAB CCR FAR TXP GSK DTTYF KYYWY
Net debt fell by £71m in 2022, even after £44m was paid into the pension. This was a greater than expected reduction, which leaves EV/EBITDA on just 6.8x 2023E, falling to 5.8x in 2024E on an IAS 17 basis. From this, we continue to believe the re-rating upside exceeds the forecast downside. This is in addition to the benefits of debt reduction.
If we took the full NLW increase off forecasts, we estimate the EV/EBITDA would be 7.5x 2023E, falling to 6.2x in 2024E on an IAS 17 basis. From this, we believe the re-rating upside should exceed the forecast downside if the interest rate cycle starts to turn. This is in addition to the benefits of debt reduction.
Meeting Notes - Oct 03 2022
MAB RNWH TEP HYVE
Cheap in a challenging space
Mitchells & Butlers, XPS Pensions Group, DP Eurasia, Real Estate Investors, CMO Group, Safestay, Mining LOWdown, SMID Market Highlights
MAB XPS RLE SSTY PAY HVO D5P 5FE
LFL sales growth continued to build in Q4, up to +1.5% vs 2019, an improvement from 0.9% in Q3, with growth in food sales offsetting more sluggish progress in drink sales. However, its unhedged energy costs have left it exposed, which, despite the government’s 6-month price cap, leads to further margin pressure. This is in addition to wider on-going inflationary pressures. We leave FY22E forecasts unchanged but reduce FY23E EBITDA by 18% and FY24E by 10%. With last reported NAV of 372p per share, and the shares now down 55% YTD, we believe the shares are attractive on 7.5x CY23E EV/EBITDA for a high-quality, well invested, managed freehold estate. Our TP moves to 205p (from 280p) BUY.
M&B Q4 trading performance was in line with our expectations. The lfl sales grew 1.5% vs FY19 levels. However, management has cautioned against rising cost pressure, especially due to energy expenditure, expected to rise further in FY23. Although M&B looks relatively better placed vs close competitor JDW, we expect the company’s near-term EPS to come under increased pressure. We will trim our financial estimates but maintain that the stock’s valuation is quite attractive at the current levels.
In our view, the shares are attractive, at 7x EV/EBITDA (IAS 17) for a high-quality national freehold managed estate. Reflecting our downgrade, we are cutting our target price from 260p to 200p, equivalent to 8.4x EV/EBITDA.
M&B is a bellwether for sector headwinds in volumes and cost inflation. Solid Q3 sales growth, with a degree of pricing power, will not prevent margin squeeze in FY23. However, with energy mark-to-market now in forecasts, any normalisation here would provide upside...and the equity is still not
LFL sales rose 0.9% in Q3 vs FY19, a reasonable performance under challenging conditions. However, inflationary pressures look set to last longer leading us to cut FY23E EBITDA by £37m to £385m and FY24E by £24m to £412m. This in turn reduces our TP from 315p to 280p based on 8.0x EV/EBITDA. Importantly net bank debt should continue to fall and may benefit from reduced pension contributions. We retain BUY.
M&B’s Q3 performance was in line with our expectations (+0.9% lfl vs pre-COVID-19 levels). However, management expects stronger pressure on the margin in the medium term, largely due to inflationary headwinds. Despite the testing times, we believe the stock has been bashed much more than justified. The company is also better placed (vs peers) to ward off recession due to its 82% freehold estate and solid backing from the key shareholder (Odyzean). We will trim our financial estimates but maintain the stock recommendation.
LFL sales are stable; forecasts cut due to higher energy costs LFL sales were up 0.9% in 3Q (vs 2019), a period in which net debt should have fallen again. However, we are cutting our 2023E PBT forecasts by £30m (20%) and 2024E by £25m (14%) due to higher cost inflation. As a result, we are cutting our target price from 310p to 260p. In our view, the shares are still attractive, at 6.9x EV/EBITDA (IAS 17, 2023E) for a high quality national freehold managed estate. Douglas.Jack@peelhunt.com, Ivor.Jones@peelhunt.com
LFL sales were up +1.0% in 1H vs 2019, improving to +2.2% in the last 5 weeks. While confident in its top line outlook, inflation is expected to rise from an annualised rate of 3.7% over the last three years to c6% next year which leads to FY23E earnings downgrades. We now expect operating margins to recover to 12% (from 14% prior) which results in a 13% cut to operating profit and 21% cut to PBT in FY23E. We lower our TP to 315p (from 380p) based on 8.0x FY23E EV/EBITDA but note the current NAV now stands significantly above this at 372p per share.
M&B’s H1 FY21/22 performance was below our expectations. Although the Q2 lfl sales remained healthy, profitability suffered due to inflationary cost headwinds. The volume decline was more than offset by premiumisation and an increased spend per person. While M&B’s market outperformance is likely to continue, we expect the margin pressure to increase further, especially in the near-term. We will trim our financial estimates but maintain our positive stance based on the stock’s valuation.
Sales are improving; forecasts held LFL sales were up 1.0% in 1H (vs 2019), a period in which net debt fell by another £42m if one includes pension contributions, and have subsequently improved in early 2H. We are holding our forecasts, with sales and price increases offsetting cost inflation rising from 3.7% annualised over the last three years to c.6% next year. We are retaining our 310p target price. Douglas.Jack@peelhunt.com, Ivor.Jones@peelhunt.com
M&B’s Q1 trading performance was in line with our expectations. The group’s lfl sales were quite strong (led by the food segment) until the surge in COVID-19 infections in December 2021. Despite a weak show during the Christmas trading period, we reiterate that the publican is well placed to clock top-line growth as the pandemic subsides. Cost inflation is also a headwind but M&B is better positioned to bear the brunt due to its premium positioning. Positive recommendation is reconfirmed.
Meeting Notes - Jan 14 2022
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M&B has delivered a robust performance in the face of the recent Omicron issues, with LFL sales -6.0% across the past 7 weeks including -10.2% over the key festive period. We believe this is better than the market feared, with M&B benefitting from its geographical spread, even split of food and drink sales and both premium and value-end brands. This should de-risk further trading recovery, help manage a higher inflationary environment and support deleveraging (FY23E net bank debt / EBITDA 2.9x). We trim FY22E sales by 2% which flows through to a 9% cut to EBIT. The stock is the best value pub play, with shares trading on an unwarranted 19% discount to pub peers. BUY
Omicron impact in Q1, cash notably strong - First Look
Energy costs take their toll; debt continues to fall LFL sales fell just 1.5% in 1Q, reflecting the impact of Omicron during the key festive trading period. However, despite this, net debt fell another £45m, if one includes pension contributions. We are cutting our forecasts (weighted to 2022E) due to assuming energy prices remain high. The historic NAV is 353p/share; although this will not be supported by forecast downgrades, debt reduction continues to beat expectations and should benefit from extra pension contributions ceasing in 2023E. We are cutting our target price from 335p to 310p. Douglas.Jack@peelhunt.com, Ivor.Jones@peelhunt.com
Proving its mettle
Factor Tilts - Value outperformance should persist, Market rally continues in Q4, Mitchells & Butlers, XPS Pensions Group, Mining LOWdown, Market Highlights
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Factor Tilts - Value outperformance should persist, Market rally continues in Q4, Mitchells & Butlers, XPS Pensions Group, Mining LOWdown, SMID Market Highlights
FY21 results came in well ahead of expectations, benefitting from strong outperformance across its premium food-led brands. The resumption of Ignite efficiency measures and the restart of its capex investment cycle supports returning sales outperformance and profit momentum; however, this is set to be overshadowed in the short-term by cost inflation of c.6% in FY22E. We therefore cut FY22E EBITDA by 13% but leave outer years broadly unchanged. The stock offers great value on 7.4x EV/EBITDA for CY22E, a 26% discount to pub peers. BUY
M&B’s has announced a strong closure to FY20/21. The adjusted EPS came in much ahead of both our and market consensus. The publican has also made a good start to FY21/22, with 2.7% lfl growth (vs same period in FY19). In the coming few quarters, we expect M&B to perform ahead of close competitors, in turn gaining market share. Positive stock recommendation is maintained on the UK-based publican.
Debt is continuing to fall quickly Net debt fell by almost £0.25bn in 2H21 if one includes pension contributions, a six-month reduction that equates to c.15% of the company’s market cap. Due to rising energy costs (M&B is only hedged for 1H22), we are cutting our 2022E PBT forecast by c.£20m and our below-consensus 2023E forecasts by c.£10m. Supported by debt reduction, the NAV is currently 353p/share, 50% above the current share price. Douglas.Jack@peelhunt.com, Ivor.Jones@peelhunt.com
There were no surprises in M&B’s pre-close trading performance (51 weeks ended 18 September 2021). Lfl sales in the recent 8 weeks came in at 104% of FY19 levels. Management has confirmed that the momentum is still strong in sub-urban and food-led brands, particularly at the premium estate. However, we expect margin pressure due to ongoing supply chain issues and the surge in input costs (raw material price, labour costs). Positive recommendation is maintained on the stock’s valuation.
Trading improves; strong net debt reduction continues LFL sales (vs 2019) improved from -11% in late June-July (undermined by Euro 2020) to +4% over the past eight weeks (boosted by staycations and improved weather) in a more favourable market for food-led operators. We are upgrading current-year profit forecasts by £10m. More importantly, net debt fell by another £64m during the past two months; we are reducing our year-end net debt forecast by £70m. As a result, the 2023E EV/EBITDA (IAS 17) valuation is just 7.1x, close to an all-time low. We maintain our Buy rating and 335p TP. Douglas.Jack@peelhunt.com, Ivor.Jones@peelhunt.com
Weekly data / Red letter week for hotels
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There were no surprises in M&B’s Q3 trading results. The lfl sales improved gradually since the lockdown restrictions were eased in the UK. The publican also fared slightly ahead of close competitors. The focus now shifts to the profitability details which management will share with the full-year numbers. Our thesis factors in the probability that the pandemic will not worsen in the coming quarters. Positive recommendation maintained on the stock’s valuation.
Sales rebuild on track; compelling valuation opp
We are holding forecasts following M&B’s Q3 trading update which, although volatile, provides comfort that trading is on track to recover to near pre Covid levels in FY22E. Changing restrictions, Euro 2020, extreme weather and changing government messaging means variable trading week to week but M&Bs balanced portfolio and wide spread Ignite initiatives give us confidence that pre Covid momentum and deleveraging will resume. The stock offers value on 7.5x EV/EBITDA for CY22E, a 34% discount to pub peers.
Ahead; forecast and recommendation upgraded LFL sales were ahead, down just 6% over the last 10 weeks, helping net debt to fall by over £100m in 3Q. We are upgrading our forecasts, resulting in lower losses and greater debt reduction in 2021E. With forecasts assuming -10% LFL sales in 4Q, we believe further upgrades are possible. Due to recent weakness and the 2023E EV/EBITDA (IAS 17) falling to just 7.6x, we are upgrading our recommendation to Buy. Douglas.Jack@peelhunt.com, Ivor.Jones@peelhunt.com
Weekly data / hotels webinar highlights
Weekly data & lead indicators + week ahead
Weekly data & lead indicators
Weekly data & lead indicators + previews for the week
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Undervalued recovery, with strong summer ahead
95% of pubs are now back open with a restart of Ignite initiatives and capex investment cycle set to resume shortly. This, and its repaired balance sheet, should support a strong recovery in 2H21E and resumption of its pre-Covid growth trajectory in FY22E and beyond. We cut FY21E EBITDA forecasts by 19% to reflect timing of easing of restrictions but leave outer years unchanged with a recovery in margin expected during FY22E. Deleveraging remains a priority with net debt / EBITDA (IAS 17) forecast to fall to c3.1x in FY22E. The stock offers value on 7.8x EV/EBITDA for CY22E, a 30% discount to pub peers. BUY
As good an H1 as could be expected under the circumstances Mitchells & Butlers’ interim results are slightly better than we expected. The company still made losses during the 14 weeks of restricted trading (with the estate closed for the remainder of the period). We are upgrading our forecasts, based on assumptions of restrictions lifting on 21 June and a bumper summer period, such that adj. PBT falls by £0.2bn rather than £0.3bn this year. The main benefit is the flow-through to net debt, and this is what has driven our 10p increase in the target price to 335p. Douglas.Jack@peelhunt.com, Ivor.Jones@peelhunt.com
Weekly data and lead-indicators
Lockdown for the sector YTD has made for a dearth of interesting datapoints, a situation that is clearly about to change. We hesitate to extrapolate from only a few days/weeks, but they nonetheless offer insights... From Franco Manca outselling 2019 last week (using a fraction of the tables) to UK
Undervalued recovery - u/g to BUY
Mitchells & Butlers has launched its fully underwritten pre-emptive open offer to raise £351m at 210p, (36% discount) alongside a net debt package. This removes the immediate refinancing concerns and provides liquidity to meet debt service payments, reduce leverage, and support a trading recovery. The three largest shareholders have consolidated their holdings (55%) and underwritten the offer, which does raise some questions on governance and future ownership intentions. However, the estate is well diversified across geographies and brands, which will support a return to the promising trading and deleveraging momentum achieved pre-Covid. We restate our BUY recommendation with a TP of 400p based on 8.5x recovered EBITDA and in line with recovered NAV.
Take up the open offer The open offer has gone ex-entitlement with minimal change in the share price. This is not a rights issue (with an option to sell rights); in our view, existing shareholders should both take up their entitlement for new shares at 210p under the open offer and subscribe for any additional shares that become available. This should resolve M&B’s liquidity concerns, and position it to emerge strongly from Covid-19. Hold, TP 325p reiterated. Douglas.Jack@peelhunt.com, Ivor.Jones@peelhunt.com
£350m placing at 36% discount; takeover at nil-premium The three leading shareholders, accounting for 55% of MAB’s shares, have consolidated their holdings under a consortium (Odyzean). Now controlling the company, it will reduce the number of independent NEDs and the time spent on PLC matters. Odyzean’s first action will be to underwrite the £350m placing and open offer. We are adjusting our forecasts and are raising our target price to 325p (from 275p), equating to 8.5x 2023E EV/EBITDA (IAS 17), but due to the change in ownership and recent strength, we are moving our recommendation from Add to Hold. Douglas.Jack@peelhunt.com, Ivor.Jones@peelhunt.com
Ideal UK consumer bellwether
M&B’s poor trading performance in Q1 FY20/21 was not a surprise. Lfl revenue in the current quarter is also likely to remain deep in the red. Management is exploring an equity issuance to remain afloat / meet the fixed cost and debt service obligations. After all, the cash coffers are fast depleting and the choice on the table is limited.
Entry point on an attractive recovery
Mitchells & Butlers is exploring an equity capital raise given the uncertainty from a return to national lockdown. This will provide needed financial and operational flexibility with no income likely until spring, and the next debt service charge payment due in mid-March. Looking past Covid, we remain strong supporters given its operational improvements, quick return to profitability and diverse freehold-backed estate. The shares offer good value and trade at a c30% discount to historic sector multiples, supported by current NAV of 390p. We move our TP and Recommendation to U/R pending further details on an equity raise.
Refinancing required Due to Covid-19, sales were down 67% in Q1, and a full national lockdown is expected for all of Q2. We are adjusting our forecasts to reflect this and to assume a more gradual recovery in Q3. If M&B gains permission to use its bond liquidity facility, it could have 3.5 months of spare liquidity under a full lockdown scenario. It has the weakest liquidity position in the quoted sector; an equity raise is likely in our view. We are moving our recommendation from Buy to Add (TP from 300p to 275p). Douglas.Jack@peelhunt.com, Ivor.Jones@peelhunt.com
Recent FY2020 results showcased the resilience of trading at M&B as hospitality reopened in July, whilst net debt was unchanged yoy. With punitive Covid restrictions, including lockdowns, likely to remain in place for a while, liquidity remains the key focus. Available resources stood at £225m towards the end of Lockdown 2, comfortably enough for beyond next Spring. MAB should be able to continue deleveraging once revenues recover to c75% of pre-Covid levels and with the stock valued at just 6x historic earnings we see why a recovery in profitability could come sooner than our 2023/4 central scenario.
4S's Book – Out of the ashes, Fair Oaks Income - Initiation, Highlighting Consumer Value, Copper remain six-year highs, New energy snippets, Mitchells & Butlers, Market Highlights
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M&B has announced better than expected closure to FY19/20. Cost-saving initiatives and the performance improvement programme (called Ignite) resulted in minimal loss during the second half of the financial year. We believe the company is well cushioned to see through the current and forthcoming pandemic-related business restrictions in the UK. We will trim the H1 FY20/21 estimates but the business is likely to pick up subsequently.
Mitchells & Butlers has a geographically and segmentally diversified pub estate that has proved resilient, rapidly returning to profits when allowed to trade. This balance, accompanied by a return of Ignite initiatives, should see it successfully navigate the new tier structure and back into growth. Liquidity headroom, although tight, appears sufficient with its banks likely to be supportive in refinancing £250m facilities maturing next year given the significant asset backing (82% freehold). We update FY21E forecasts to reflect latest restrictions but leave FY22E broadly unchanged. The shares trade on CY22E EV/EBITDA of 6.8x and PE and 7.6x, supported by current NAV of 390p. BUY
An encouraging pre-close trading statement shows progress with 95% of sites open and LFL sales of -3.1% YTD, currently running at -6.4% in September. However this was before the latest round of restrictions which come into force today. An early curfew may impact up to 5% of sales, but more important is the yet unknown damage to consumer confidence. The business has £240m of liquidity headroom to survive a protracted recovery. With 83% freehold backing and a current NAV of per 365p per share, we see value. BUY
M&B looks set to resume its outperformance when it reopens c90% of its UK pubs this month. Its 46 Alex sites in Germany reopened in May are already trading at a promising 70% YoY and so provide invaluable insight and confidence. Additionally, the extended debt facilities and covenant test relief provide further liquidity confidence and flexibility. However visibility remains poor and, with guidance withheld, we adjust forecasts based on a cautious outlook with pubs returning to 70% trading by Q4. The portfolio devaluation is understandable (and possibly temporary) but still point to a NAV far in excess of our TP.
Podcast: Mitchells & Butlers, SAS: The case of earnings complexity and COVID-19, Investment Platforms estimate updates, Kone, Spectris, Malin, Market Highlights
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Mitchells & Butlers, SAS: The case of earnings complexity and COVID-19, Investment Platforms estimate
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In the latest edition of Liberum's Podcast - Best Idea of the Week, Ed Blair talks to Leisure Analyst Anna Barnfather broadly about the pub sector, if it can adapt to post Covid-19 trading uncertainties and why Mitchells & Butlers is her preferred stock.
M&B should have sufficient cash resources to fund obligations well into the second half of the year, subject to covenant waivers. Lender negotiations are on-going but so far have been supportive, waiving the next quarters covenant test, as well they should given the significant asset backing and pre-COVID trading momentum.
M&B has made a strong start to FY19/20 with 2.6% lfl sales growth during Q1. The positive momentum was led by both the food and drinks businesses, despite strong comparables, wet weather conditions and uncertain consumer demand considering recent elections and economic conditions in the UK. We expect the momentum to continue in the remainder of the financial year and, hence, will raise our sales estimates.
LFL trading has strengthened over the 14 weeks ended 4 January 2020, with a strong performance over the festive period helping to drive LFL sales growth of +2.6% - with +1.4% in the first 7 weeks strengthening to +3.5% in the last 7 weeks. This is particularly impressive given the challenging prior year comparatives (1Q19 +4.7%), election disruption and wet weather.
M&B has reported a strong closure to FY18/19. The adjusted operating profit came in line with our estimate of £317m. Tighter capital expenditure, better than expected net debt reduction and management’s disclosure of 1.4% lfl sales growth in the first seven weeks of the new financial year also bode well for investors’ sentiment. The company should be able to sustain this momentum and preserve the profit margin in FY19/20.
M&B results beat expectations delivering sustained LFL growth, profit growth and margin improvement. This reverses the recent historic trend and drives a material reduction in leverage.
M&B’s pre-close trading performance for the 51 weeks ended 21 September 2019 was ahead of our estimates. The momentum has carried forward in the new financial year, a positive sign for investors’ sentiment. Despite our optimism on top-line growth, we believe the momentum is likely to moderate gradually. We will increase the financial estimates and target price slightly.
M&B continues to outperform the market with 3.3% LFL sales growth in Q4 and 3.6% for FY19E with total sales of 4.0%. Drinks sales were particularly strong in Q4, with LFL sales growth of 4.0% helped by the recent Indian summer.
Q3 LFL sales grew +2.8% over the last 10 weeks to 27 July with performance consistently ahead of the market (CPBT +1.4% in June overall, -1.2% for pubs). Food sales were particularly strong (+5.4%) while drink sales flattish (-0.3%), as expected given the comparative period last year included World Cup and sunny weather.
M&B posted another strong performance in the 10 weeks ended 27 July 2019. Lfl growth came in at 2.8%, which was ahead of the market average, led by the food business (drinks slipped into the red). While we remain positive on management’s strategy to propel the top line, the increasing likelihood of a hard Brexit scenario is a dampener. As a result, we take a cautious approach towards M&B’s earnings/growth prospects in the subsequent years. No change in the stock recommendation.
M&B’s H1 performance was slightly ahead of our estimates. Key takeaways were stronger lfl growth (led by both food and drinks) and a 20bp improvement in the adjusted operating margin. In H2, we expect the lfl growth to soften a bit. Our stance on profitability remains cautious for the years ahead as UK consumer demand remains uncertain (Brexit is still a key pain-point) and M&B needs to absorb a high fixed cost base. No change in the stock recommendation.
M&B has reached a tipping point with sustained LFL outperformance now translating to profit growth. Importantly, its approach is multifaceted, driven by a large number of initiatives driving both sales up and costs down across all parts of its estate.
A strong performance around Christmas has lifted investors’ spirits. However, we would not be surprised if this momentum normalises in the coming quarters, given the uncertainty surrounding consumer spending / the state of the UK’s economy. As a reminder, the stock price is likely to nose-dive in the case of a hard-Brexit scenario. Until there is a clear decision on Brexit, M&B is unlikely to get an upward-rerating in our opinion.
The new financial year has started well with LFL sales growth of 4.7% in Q1 aided by strong trading over the festive period and with growth more evenly balanced between food and drink. This improvement in trading, combined with the prospect of reducing pension payments flagged at the prelims, helps to allay some of our strategic concerns and we upgrade our recommendation to HOLD (from SELL) and move our target price to 270p (from 210p). We still have concerns around ROIC and debt profile/cash flexibility but believe this is already reflected in the current rating. The stock is trading on CY19E EV/EBITDA of 6.8x and PE of 7.5x with no dividend expected. Q2 is likely to be more challenging but these results put the company on track to achieve our FY19E LFL sales growth expectations of 3.0% and PBT of £181.4m.
M&B has made a good start to FY19 with positive lfl momentum. The cost pressure is unlikely to abate in the near term and management’s decision to abort dividends and prioritise balance sheet deleverage is a step in the right direction. No changes to our stock recommendation.
While the drinks business continues to remain strong, the slump in the food segment is more than we expected. Although management has confirmed the segment’s recovery post the conclusion of World Cup, the publican needs to perform in line with the peer average in order to trigger the next upward stock price momentum. No change in our recommendation.
M&B’s H1 results were impacted by unfavourable weather conditions and cost headwinds. Management has announced the new leg of performance improvement initiatives ‘Ignite 2’, which is likely to bear fruit in the mid-term. We remain optimistic about the company’s ability to improve margins gradually. No change in stock recommendation.
M&B reported a decent performance in Q1, and seems to be well placed among branded publicans in the UK. However, it has very little margin of error to implement successfully the performance turnaround plan. As mentioned earlier, the stock can witness further upside if management finds success with the premiumisation of the estate. We have raised our estimates slightly, but no change in our stock recommendation.
While trading was perhaps better than expected over the festive period, the longer term trends remain harder to read with weather and accounting misalignment distorting the picture. What is clear is that cost inflation will continue to drag margins lower in the year ahead with industry wide competition and heavy discounting adding to the woes. With limited freedom of cash flow movement and no dividend support, we see lower risk, better value elsewhere and maintain our sell recommendation.
M&B reported 1.8% lfl sales growth (c.20bp below our estimate) in 51 weeks ended 16 September 2017. The drinks business clocked 2.1% revenue growth while the food segment was up 1.4%. Reported revenue surged 2.9% (vs our estimate: +1.1%), largely due to 13 new sites during the period. The company disposed of 79 under-performing pubs (worth £46m) and completed 236 conversions/remodels during the year.
M&B reported better than expected revenue growth in H1 FY17 (28 weeks ended 8 April 2017) but profitability disappointed with a 4% decline in adjusted EBIT. The lfl sales improved by 1.6% (Q2: +1.4% vs Q1: +1.7%, our H1 estimate: +1.4%) during the period, on the back of positive momentum in both the drinks and food businesses (+2.3% and +0.8%, respectively). Net estate addition (additions: 6, disposals: 4 and transfers: 1) resulted in total revenue growth of 2.5% (vs H1 16: +1.5%; our estimate: +1.4%). However, the adjusted operating profit margin slumped to 13.3% (-90bp yoy), largely due to cost pressure from wage inflation, property costs and exchange rate movements. Capital expenditure increased to £93m (vs H1 FY16: £88m) during the period, including maintenance capex of £24m (vs H1 FY16: £34m) and remodelling/conversion capex of £69m (vs H1 FY16: £54m). The turnaround plan is continuing as per the schedule, with 172 sites remodelled/converted (vs H1 2016: 164), and primarily focused on estate premiumisation to the Miller & Carter and Stonehouse brands. An interim dividend of 2.5p per share was declared by the company. Management expects the inflationary cost pressure to persist in the coming quarters.
M&B reported Q1 FY16/17 trading numbers (15 weeks ended 7 January 2017) which were ahead of our estimates. The lfl revenue increased by 1.7% (vs our estimate: +0.5%), on the back of a strong performance across all brands during the Christmas and New Year period. Both drinks (+1.7% lfl) and food (+1.6% lfl) business contributed evenly to the growth momentum. The addition of a new pub underpinned the total revenue growth to +2.3% (vs our estimate: +1.0%). The company has converted/remodelled 69 sites in the current financial year (plan to complete c.300 in FY16/17) as part of the business turnaround strategy. Management has reiterated that the annual profit margin will be lower than last year’s due to increased cost pressure.
M&B reported FY16 results subsequent to the pre-earnings update (refer our Latest published on 12 October 2016) which were in line with our estimates. The lfl revenue came in at -0.8%, largely due to a decline in the food business (-1.4% yoy; -5.7% volume offset by +4.6% spending per head). Despite clocking 1.3% organic growth in H2, the drinks business was down 0.1% on an annual basis (-4.0% volume balanced by +4.1% spending per head). The addition of six pubs compensated for the negative scope impact of 16 disposals during the year, resulting in total reported revenue of -0.7% (vs our estimate: -0.6%). The operating margin was akin to our estimate of 15.2% (15.6% in FY15), pinned down by increased wages and property remodel/conversion costs. The turnaround plan remains well on track, with 252 estates remodelled/converted in FY16 (vs 250 planned). Additionally, the company has maintained its previous guidance of c.300 estate remodel/conversions in each of the next four financial years. Management has declared a final dividend of 5p per share (bringing the full-year total to 7.5p) and also plans to provide a scrip dividend as an alternative to the shareholders. However, the organic revenue increased by 0.5% (though in line with our estimate) in the first eight weeks of FY17. Also, the company expects the operating margin to slump further in FY17 on the back of higher wages (national minimum/living wages regulation), increased input costs (GBP depreciation impact on import price) and the business rate review.
M&B has reported full year results to the end of September which were broadly in line with consensus showing LFL recovery towards the end of the period. LFL sales were down -0.8% and operating margin -40bps to give Operating profit of £318m (PGe £322m), broadly in line with our forecasts and consensus. Net debt declined to £1.84bn (4.3x). Current top line trading looks reasonable with total LFL 0.5% against a subdued market however cost inflation is mounting and hence we expect to cut our numbers by c4%. We retain our Hold recommendation.
M&B released Q4 FY16 trading update slightly ahead of our estimates. The lfl revenue increased by 1.8%, largely driven by strong growth in the drinks business (+3.7% vs -0.9% in 43 weeks ended 23 July 2016), on the back of favourable weather conditions and good sales growth from invested sites. The food business also returned to positive territory (+0.4% vs Q3: -1.5%, H1: -2%), supported by the improved trend in the UK’s eating-out market. For 51 weeks ended 17 September 2016, the lfl revenue was down 0.8% (vs our estimate: -1.2%). As previously disclosed by management, the margin for the full year will be below last year’s (our estimate: -40bp yoy), due to accelerated estate investment and the adverse impact of the new minimum wage law (implemented in April 2016). The company is moving on the right track with the turnaround plan; 244 sites converted/remodelled (vs 250 planned) and seven new sites have been opened during the year.
Mitchells & Butlers released a pre-close trading update showing LFL sales for the last 8 weeks turning positive, at +1.8% to give -0.8% for the Full year. This has been helped by the recent favourable weather driving drink sales in particular. Margins will be below last year (we model -30bps) as a result of wage inflation and accelerated investment. In the year, the company remodelled 244 sites and opened 7 new sites. While the return to positive LFL sales growth is encouraging, we remain concerned about the increasing labour cost headwinds into 2017. Hold.
M&B will release a pre-close trading statement on 19 September which should show another sequential improvement in LFL trends. 3Q trading reported LFL sales decline of -0.7% giving -1.3% YTD with growth in drink sales driving the improvement alongside c250 pub remodels/conversions. Our 2016E PBT estimate of £179.2m (EPS 34.8p) is based upon -0.5% LFL sales decline and 15 new openings combined with -30bps decline in margin (wage inflation).
M&B reported its Q3 FY16 trading update (15 weeks ended 23 July 2016) in line with our estimates. The lfl revenue decreased by 0.7% (vs Q2 16: -2.6%, Q1 16: -0.6%; our estimate: -0.8%), primarily on the back of poor weather in June and the adverse impact of Euro 2016. Food revenue declined by 1.5% on a lfl basis, while the drinks business clocked +0.2% growth. For the 43 weeks period, the lfl revenue was down 1.3%, reflecting negative growth in both the food (-1.8%) and drinks (-0.9%) businesses. The company opened five sites and converted/remodelled 232 sites (vs planned 250 sites for FY16) during the year. The recently invested sites continued to report sales growth of over 10% in the year post reinvestment. Management has cautioned about the potential Brexit impact on consumer demand in the short run, but remains confident about successful implementation of the turnaround plan over the mid / long-term.
3Q LFL sales trends show an improving trend despite wet June and adverse Euro’16. Overall, LFL sales decline has slowed to -1.3%, from -1.6% at the interim stage with -0.7% over the last 15 weeks – mainly helped by an improvement in Drinks sales. The Company is on track to remodel 250 sites this year with recently invested sites showing sales growth >10%. NLW will have negative impact on margins in 2H as expected and we are leaving our forecasts and recommendation unchanged at HOLD.
M&B reported H1 FY16 results (28 weeks ended 9 April 2016) below our estimates. The lfl revenue growth declined by 1.6% (Q2 16: -2.6% vs Q1 16: -1.5%, FY15: +1% and our estimate: -0.8%), driven down by a c.5% volume decline in both the food (lfl revenue: -2% yoy) and drinks (lfl revenue: -1.5% yoy) businesses. Total revenue also decreased by 1.5% (vs H1 15: +9.5%; our estimate: -0.3%) due to ‘zero net pub addition’ during the period (additions: 5, disposals: 4, and transfers: 1).
Mitchells & Butler released half year results in line with expectations with tough LFL sales (-1.6%), offset by +50bps margin improvement. More importantly the new (ish) CEO Phil Urban has outlined his plan following a comprehensive strategic review. This will involve acceleration in investment and conversions to enhance organic growth, to increase exposure to the Premium segment (Miller & Carter), re-model and reduce size of the Harvester estate, and convert many Crown Carveries to the Pizza & Carvery concept. The new initiatives will cost £180m capex this year and £200m next and aim to target 300-350 conversions a year (1,775 in total). Pricing, procurement and culture initiatives are also in play. This hits the right strategic notes but will take time. Meanwhile competition remains tough. More after the call, but we expect this to be well received by shareholder today.
M&B Q1 trading statement for 17 weeks ended 23 January 2016 (financial year ends in September) portrays a disappointing picture. Total revenue registered a decline of 0.8% ytd (vs +9.1% yoy) and lfl sales down by 1% (vs +1.7% yoy), driven primarily by lower food volume (-1.5% yoy). The lfl growth during two weeks of Christmas and New Year, was 2% (vs 4.8% yoy), in line with sector's seasonality. The company does not report the profit numbers in the trading update but shared that the accelerated restructuring programme resulted in a better operating margin compared to the previous year. Two new sites were acquired and converted 12 (including 10 Orchid conversions), along with the refurbishment/ remodelling of 76 sites during the period.
MAB has reported trading update for the 17 week period to 23 January, with M&B reporting a slight improvement in trading for the last 9 weeks, with LFL sales down 0.6% in the period, compared to -1.6% for the prior 8 weeks (to 21 November 2015). Encouragingly, despite negative LFL sales, margins are ahead year-on-year. Whilst LFL sales remain negative and we remain concerned about the competitive threat to M&B's pub & restaurant market share, we believe the valuation of M&B now reflects this, with M&B trading on a 2016E PER of 7.7x and an adjusted EV/EBITDAR of 7.2x, with a FCF yield of 6.0% and Dividend yield of 2.7% – the lowest in the sector. We therefore upgrade to Hold from Sell and retain our 300p price target.
As indicated in the disappointing pre-close shared at the end of September, lfl revenue growth was a meagre 0.8% and overall revenue was up 6.6% to £2,101m. However, the underlying EBIT margin came in at 15.6% (vs. 15.9% in FY14), ahead of our estimate of 15.0%. Also, interest cost and taxes came in lower than our estimates. However, the company took a £65m revaluation charge relating to its property portfolio. The reported EPS came in at 25.11p (vs. our earlier estimate of 33.9p) while EPS before exceptionals was 41.56p (vs. our estimate was 35.1p). Despite recognising a very competitive environment and wage rises as challenges, Mr Phil Urban, the new CEO (7 weeks), laid down his strategy for M&B saying that profitability will take precedence over lfl growth and digital adoption + people will be at the heart of a culture to make a pacier execution. Interestingly, contrary to the Coffer Peach October 2015 figures of 2.7% growth for managed pubs, the 8 weeks trading ending 21 November (lfl sales down 1.6% and total sales down 1.3%) has been worse than in FY15. M&B resumes its dividend (last paid in 2008), with a 5p payout announced for FY15 and a 7.5p/2.3% yield indicated for following years.
Mitchells & Butlers (M&B) has not paid a dividend since 2008, and its resumption has been extensively discussed, planned and considered for sustainability. Arguably the bellwether of the UK pub industry, its return to the dividend list now broadens its potential investment appeal. This is the opportunity for investors who believe M&B is capable of closing the 30% valuation gap to peers, although no one should expect that to be quick.
M&B has reported full year results to the end of September with trading in line with expectations. Total revenue increased 6.6% driven by LFL sales growth of 0.8%. Operating profit was reported at £328m (margin -30bps), in line with our forecasts and consensus. Net debt declined to £1.87bn, slightly better than our expectations of c£2bn and the company is to resume the dividend in FY15, with a final dividend of 5p. Current trading for the first 8 weeks looks disappointing with total sales down 1.3% and LFL sales down 1.6%, reflecting an increasingly competitive environment. Following today's results we retain our Sell recommendation and reduce our price target to 300p (from 314p). To our minds M&B remains poorly positioned in an increasingly competitive pub & restaurant environment.
M&B continued its streak of disappointments as it provided a pre-close trading update for FY15. Signalling a dismal Q4 performance, lfl growth for the 50 weeks came in at 1% (vs. our estimate of 1.4%) vs. 1.3% for the first 43 weeks and 1.7% for H1 15. Lfl food growth reversed to -0.2% (vs. +2.5% in the first 43 weeks ending 25 July) and drinks lfl further dropped to -1.4% (vs. -0.1% in 43 weeks). Management attributed the decline partly to wet weather during these summer months and a subdued eating & drinking out market, on a yoy basis. Total sales growth for the 50 weeks came in at 7%, below our estimates of 7.8% growth. Given the slowdown seen in the last quarter, M&B revised its PBT guidance for the full year “to be at the bottom end of consensus forecasts” (consensus PBT: £178-203m), c.5% below our estimate of £187m. In line with its earlier guidance, M&B opened 14 new sites and converted 48 sites (including 38 Orchid sites) in the year to date (12 September). The board made a surprise announcement of appointing Phil Urban, COO (joined in January 2015), as the new CEO and the end of Alistair Darby’s term on 26 September. This is quite possibly in view of the laggard performance, particularly in H2. Phil has prior experience as Managing Director at Grosvenor Casinos (a division of Rank Group), Whitbread’s Pub Restaurant division and Scottish & Newcastle Retail Restaurants.
Pre-close update showed further weakening in trading with both Food and Drink sales down on a like for like bases over the summer. This underscores our investment thesis that pub restaurants are losing out to casual dining operators, exasperated by the inclement summer weather, with management warning that full year results will be at the bottom of the range. We downgraded forecasts 4-7% earlier this month. The Company also announced a change in CEO. We are not changing our recommendation. Sell.
Over the last three months M&B has been the worst performing Pub & Restaurant stock, declining c.23% in absolute terms and has underperformed the All Share by c.13%. Despite the significant fall in the company's share price, we feel there remains downside risk due to increasing competition from casual dining chains and we remain cautious on the outlook. Both yesterday's trading updates from Whitbread and Greene King highlighted a tough trading environment for pub restaurants, whilst wet-led pubs are outperforming. Therefore, we downgrade our 2016, 2017 and 2018 forecasts by 4%, 5% and 7% respectively and now sit 2%, 3% and 4% below consensus estimates. We reduce our target price to 331p (from 377p) due to a more cautious outlook and retain our Sell recommendation.
M&B’s Q3 update reported Lfl growth of 0.8% in the 11 weeks to 25 July 2015 (vs. H1 15: 1.7%; Q3 14: 0%), with food lfl growth (2.5% in Q3 15; 2.9% in H1 15; 0.6% in Q3 14) compensating for the dismal drinks performance (-1.0%; 0.4% in H1 15; -0.5% in Q3 14). The company cited wet weather in July as well as the Easter effect in the second half of 2014 vs. the first half of 2015 to be the key reasons for the sort of trend reversal seen from H1 15 (1.7%, 1.4% excluding Easter impact). Management reiterated a lower operating margin due to food-led sales mix and the integration of the Orchid business; this is in line with earlier guidance of 30-40bp drop from FY 14. M&B’s management expects the changes in the minimum wage announced by the UK government to have around a £30m annual impact on wages and salary costs and is in the process of reviewing a range of options to mitigate the impact. As a reminder, the Finance Minister in his July budget announced an increase to the minimum wage rate in the UK for employees above the age of 25 years to £7.20 per hour for 2016 (up 7% from the current rate of £6.70) and a 6% annual increase to reach £9 by 2020. Also, the UK corporate tax rate would be cut to 19% in 2017 and 18% in 2020.
Mitchells & Butler has reported a Q3 trading update with trading soft in the quarter, with LFL sales growth of 0.8% (H1: 1.7%). Strong LFL food sales growth of 2.5% was offset by weak drink LFL sales down 1%. Operating margins are expected to be lower year-on-year, partly reflecting the acquisition of Orchid and sales growth being driven by food sales. The company has opened 11 new sites in the period (well behind FY new site guidance of c25), whilst converted 43 sites (including 32 from Orchid – with the acquisition integration on track). The company suggests the New Living Wage will have an impact on the cost base and are looking at ways to mitigate. Following today's update we retain our 2015 PBT forecasts of £186m, based upon 1.5% LFL sales growth (we are c.2% below consensus). We retain our Sell recommendation and 377p price target.
