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.
