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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.
Companies: Mitchells & Butlers plc
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.
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.
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.
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.
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.
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.
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.
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’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 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.
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.
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