When we recommended buying shares in Mitchells & Butlers we suggested the reinstatement of the dividend would cause a re-rating. Clearly we were not the only ones with such hopes because news that the widely anticipated event would not take place just yet sent the shares 3 per cent lower. Still, there are many reasons for cheer even though, based on broker Panmure's forecasts, shareholders will be 7.5p per share worse off in cash terms as a result of the board's dividend decision.
The company is still putting these funds to good use as the cash profit return on expansionary investment over the last two years has been 30 per cent. What's more, trading is strong. Like-for-like sales were 2.8 per cent ahead in the latest 12 months to end-September and 3.7 per cent ahead in the eight weeks since then. And ignoring a £304m exceptional charge relating to a downward revaluation of property, operating profit was up 7.3 per cent at £322m thanks to improved sourcing, lower waste and menu changes.
Reduced debt, following £500m of asset sales, helped cut interest charges and push both underlying pre-tax profit and EPS 26 per cent higher to £169m and 29.7p, respectively. Recent disposal of non-core properties will temporarily lower profits, though, so broker KBS Peel Hunt forecasts 2011 pre-tax profit of £159m, EPS of 27.8p and a 7.5p dividend.
| Mitchells & Butlers (MAB) | ||||
|---|---|---|---|---|
| ORD PRICE: | 342p | MARKET VALUE: | £1.4bn | |
| TOUCH: | 341-342p | 12-MONTH HIGH: | 364p | LOW: 243p |
| DIVIDEND YIELD: | nil | PE RATIO: | na | |
| NET ASSET VALUE: | 215p | NET DEBT: | £2.3bn | |
| Year to 25 Sep | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2006 | 1.72 | 220 | 39.7 | 12.3 |
| 2007 | 1.89 | -48 | -2.5 | 14.3 |
| 2008 | 1.91 | -238 | -43.7 | 4.55 |
| 2009 | 1.96 | -10 | 1.0 | nil |
| 2010 | 1.98 | -127 | -20.6 | nil |
| % change | +1 | - | - | - |
