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Pressure on Mitchells' margins unlikely to ease

Wage costs and investment in the estate weighed on margins, and there's more pressure due from rising business rates and cost inflation
November 22, 2016

The recent drop in the shares of pub group Mitchells & Butlers (MAB) suggests the market thinks there's still work to do. Like-for-like sales for the year under review dropped 0.8 per cent - the amount they grew by in the previous financial year. But in the first eight weeks of the new trading year, sales have risen 0.5 per cent, attributed in part to improvements across the estate. A total of 252 sites were remodelled or converted and the plan is to complete work on a further 300 this financial year, the cost of which is weighing on reported profits.

IC TIP: Sell at 273p

The four basis point drop in adjusted operating margins to 15.2 per cent would have been an issue for investors too. It's explained by a 5.2 per cent increase in wage costs, alongside investment in the estate. But with the business rates review kicking in during 2017 and future price inflation on goods bought from overseas, margins may well remain under pressure. Management will hope to mitigate this by enticing premium punters with brands such as Miller & Carter (which it plans to expand to 100 venues by 2018 compared with 52 now) and its new Stonehouse carvery concept.

Analysts at Numis expect adjusted pre-tax profit of £188m for the year to September 2017, leading to EPS of 35.9p, up from £181m and 34.9p in FY2016.

 

MITCHELLS & BUTLERS (MAB)
ORD PRICE:273pMARKET VALUE:£1.13bn
TOUCH:270-273p12-MONTH HIGH:357pLOW: 207p
DIVIDEND YIELD:2.7%PE RATIO:13
NET ASSET VALUE:340pNET DEBT:131%

Year to 24 SepTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20121.898317.1nil
20131.9014231.2nil
20141.9712322.6nil
20152.1012625.05.00
20162.099421.67.50
% change-1-25-14+50

Ex-div: 1 Dec

Payment: 7 Feb