Mitchells & Butlers raises guidance as profits soar

Mitchells & Butlers' (MAB) shares gained more than 10 per cent as the restaurant and pub operator delivered robust half-year profit growth and said its full-year performance would be at the top end of consensus forecasts.

Chief executive Phil Urban said that "continued like-for-like sales outperformance against the market coupled with easing inflationary costs and a focus on efficiencies has resulted in very strong profit recovery for the period". 

Revenue growth was driven by higher customer spend per head, although management flagged that volumes fell slightly across the half due to weaker post-festive trading. Like-for-like sales growth slowed from 7.7 per cent in the first quarter to 6.1 per cent in the second. 

The operating margin performance was a standout, rising from 7.7 per cent to 11.7 per cent on profit growth of 64 per cent. Margins are being assisted by lower than expected cost headwinds, as the company continues to rebuild margins against the pre-pandemic baseline. Management now anticipates a £55mn hit this year as lower energy and food costs soften the impact of the increase in the national living wage. 

Net debt (excluding leases) was down by £156mn to £1.04bn as the cash inflow before bond amortisation shot up from just £10mn to £137mn. Leverage improved from 4.7 times to 3.6 times. 

The shares trade at 11 times forward consensus earnings, well under the five-year average. However, in a context where the shares are up by over 40 per cent over the past 12 months and the share price isn't far off the mean consensus target price of 315p, we stay where we are. Hold. 

Last IC view: Hold, 223p, 30 Nov 2023