- Post-period sales up on pre-pandemic levels
- Pub group recently signed new £150m three-year unsecured facility
For much of the year prior to the pandemic, shares in Mitchells & Butlers (MAB) were changing hands at a discount to underlying assets, but that situation reversed on the back of rising sales volumes, prompting broker upgrades by the end of 2019. Then the world fell poorly.
The pub group’s subsequent progress, like that of the wider hospitality industry, was hampered by decisions that were made elsewhere and beyond its influence. In reaction, the group cut back working capital spend, furloughed most of its staff and reduced discretionary capital expenditure. An open offer to build liquidity duly followed and the group reached agreement with its banks for a new £150m three-year unsecured facility.
In all, M&B had to endure 18 weeks of enforced closure and a further five weeks of outdoor trading in April and May. What matters now is the shape of the market post-pandemic. Near-term auguries are not wholly positive. True, the group returned to profit in the second half of FY 2021, while sales nearly doubled to £846m. But the group is still faced by increasing prices for energy, rising labour costs, a shortage of workers, to say nothing of the prospect of a further lockdown if the UK follows Austria’s example – don’t count it out.
It’s difficult to arrive at any meaningful comparisons given we’re approaching two-year’s worth of intermittent disruption. But in the eight weeks following the period-end, M&B registered like-for-like sales growth of 2.7 per cent compared to the pre-pandemic comparator. Food sales increased by 9.5 per cent, though wet sales contracted by 4.8 per cent. It is difficult to say if the reduced VAT on pub grub will support this trend over time, but industry bosses must be concerned that punters may still be reluctant to risk the hubbub of a crowded bar because of the Delta variant. Indeed, pub peer Wetherspoon has extended a 99p-a-pint offer until March, presumably in a bid to stimulate custom.
M&B maintains that “the desire to socialise in pubs and restaurants…remains strong and that there is pent-up demand which has built during closure”. Maybe so, but the pubcos have given differing impressions on how trade volumes are retracing, particularly regarding the wet trade. Those uncertainties are reflected in a forward rating of 12 times adjusted consensus earnings. And it’s worth pointing out that matters weren’t entirely rosy prior to Covid-19, with on-trade volumes shrinking significantly since 2000. Hold.
Last IC View: Hold, 338p, 17 Feb 2021
|MITCHELLS & BUTLERS (MAB)|
|ORD PRICE:||245p||MARKET VALUE:||£1.46bn|
|TOUCH:||244-245p||12-MONTH HIGH:||340p||LOW: 189p|
|DIVIDEND YIELD:||NIL||PE RATIO:||N/A|
|NET ASSET VALUE:||353p||NET DEBT:||86%|
|Year to 25 Sept||Turnover (£bn)||Pre-tax profit (£m)||Earnings per share (p)||Dividend per share (p)|
|† 2017-2020 EPS and div per share figures have been restated to reflect the bonus element for the 7-for-18 open offer in March 2021|