ii view: bar owner Mitchells & Butlers cheers big profit

Full-year results to 28 September

• Revenue up 4.3% to £2.61 billion
• Operating profit up 41% to £312 million
• Continues to not pay a dividend
• Net debt down 16% to £989 million

Chief executive Phil Urban said:

"We are delighted by the very strong performance during the year.  Like-for-like sales continued to outperform the market which, coupled with easing inflationary costs and focus on efficiencies, has resulted in very strong profit recovery.    

“We face increased inflationary cost headwinds in the year ahead. However, we shall remain focused on our established Ignite programme of initiatives and our successful capital investment programme, to drive further cost efficiencies and increased sales.”

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ii round-up:

All Bar One owner Mitchells & Butlers (LSE:MAB) today detailed annual profit that beat City forecasts as well as robust current trading. 

Adjusted profit for the year to late September rose 41% year-over-year to £312 million, exceeding analyst estimates of £303 million. Like-for-like sales for the first seven weeks of the new financial year improved 4% from a year ago, up from a 3.4% gain during the quarter just gone. 

Shares in the FTSE 250 company rose 2% in UK trading having come into these results down 5% year-to-date. Budget rival Wetherspoon (J D) (LSE:JDW) has fallen by close to a quarter in 2024. The FTSE 250 index is up almost 6% year-to-date. 

Mitchells operates over 1,700 pubs and restaurants with brands including Nicholson's, O'Neill's, Harvester, as well as Innkeeper hotels. 

Accompanying management outlook comments flagged increased inflationary cost headwinds. The hospitality group is expected to face an extra £100 million of costs in the year ahead, largely due to increased national Insurance contributions and the national living wage. 

Group net debt, excluding property leases, fell 16% to £989 million. Mitchells still does not pay a dividend given its focus on reducing debt. 

A first quarter trading update is likely mid-January. 

ii view:

The Birmingham headquartered company employs more than 50,000 people across its pub and hotel outlets. Other group brands include Toby Carvery, Browns, steak restaurant Miller & Carter and Ember Inns. Food generates its biggest slug of revenues at just over a half, followed by drink at most of the balance and other services such as hotels under 5%. Geographically, Germany via the Alex branded bar chain generates almost 5% of sales. 

For investors, increased costs from the recent Budget warrant consideration. Disposable consumer income remains pressured given elevated borrowing costs. German generated sales can raise currency headwinds, while the suspended dividend payment contrasts with a forecast yield of close to 3% at rival Fuller Smith & Turner Class A (LSE:FSTA).

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On the upside, sales growth continues to outpace the broader industry average, and cost headwinds for key inputs such as food and energy have eased. Management initiatives including a focus on broader costs under its Ignite programme persist, while management’s concentration on lowering debt at the expense of the dividend looks sensible.   

For now, and despite continued risks, a consensus analyst fair value estimate above 340p per share is likely sufficient to keep investors interested in long-term potential. 

Positives: 

• Diversity of brands
• Ongoing management efficiency programme

Negatives:

• Uncertain economic outlook
• The weather can impact performance

The average rating of stock market analysts:

Buy