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Spruced up sites help Mitchells & Butlers, but there's work to do yet

Average numbers hide the turbulence boiling beneath the surface
May 20, 2016

Sales are on the rise in those pubs and restaurants within Mitchells & Butlers' (MAB) estate that have been remodelled or converted over the past 18 months or so. Turnover at these so-called 'invested' sites rose 10 per cent in the first half, but that stands in contrast to the performance of those sites that haven't benefited from an upgrade. As a consequence, overall like-for-like sales contracted by 1.6 per cent.

IC TIP: Sell at 282.9p

Chief executive Phil Urban - who has been at the helm for nearly 18 months - believes investment in the "guest-facing" components is the best way to improve group fortunes as this can help tap into the premium end of the market and compete more effectively with the growing number of food and drink venues across the UK.

But an increasingly competitive marketplace isn't all Mitchells is having to contend with at present, as the national living wage (NLW) is putting extra pressure on expenses. Although adjusted operating margins were up by 0.5 percentage points to 14.2 per cent compared with the first half of 2015, this has largely been attributed to high exceptional costs last year and management has warned that the NLW is likely to generate an incremental gross cost of £7m in the second half, which is likely to drag on profits and earnings.

Prior to these results, broker Peel Hunt forecast full-year adjusted pre-tax profits of £187m and EPS of 35.2p for the September 2016 year-end, compared with £184m and 35.5p in 2015.

MITCHELLS & BUTLERS (MAB)

ORD PRICE:282.9pMARKET VALUE:£1.17bn
TOUCH:282.3-293.0p12-MONTH HIGH / LOW:485p250p
DIVIDEND YIELD:2.7%PE RATIO:10
NET ASSET VALUE:310pNET DEBT:145%

Half-year to 9 AprTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20151.117514.4nil
20161.108318.42.50
% change-1+11+28-

Ex-div: 26 May

Payment: 4 Jul