Mitchells and Butlers falls into the red

Mitchells & Butlers’ (MAB) shares were marked down after the managed restaurants and pubs operator slipped to an annual loss on the back of cost headwinds of £175mn and downward property valuation and impairment movements. This was despite chunky top-line growth at the All Bar One owner, as like-for-like (LFL) sales came in 10.5 per cent ahead of pre-pandemic levels "driven by spend-per-head".  

LFL sales rose 9.1 per cent against last year, with food sales up 8.6 per cent and drink sales up 9.9 per cent. Strong momentum has continued, if at a slower pace against tougher comparatives, with LFL sales climbing 7.2 per cent since the year-end. 

Operating profit was down from £124mn to £98mn year on year, hit by the non-repeat of the VAT reduction and government grants last year. The statutory operating margin fell 170 basis points to 3.9 per cent due to impairment and cost pressures.

Management, however, argued that the company is "well positioned to rebuild margins back towards pre-pandemic levels". And the company expects cost headwinds to fall significantly to £65mn in 2024 despite the 9.8 per cent increase in the national living wage coming in April, as lower energy costs and slowing food inflation flow through. 

Elsewhere, the company completed the buy-in of its main pension scheme. Shore Capital analysts said that "this should lead to improved cash flow and lower pension interest charges". 

The shares trade at 12 times forward consensus earnings, a significant discount to the five-year average of 25 times. But, as these results made clear, the company is still trading in a volatile environment even if headwinds are set to ease. Hold. 

Last IC view: Hold, 192p, 17 May 2023