- Robust trading ahead of market
- Full-year results ahead of expectations
- Earnings upgrades
Pubs group Mitchells & Butlers (MAB) continued to grow sales ahead of the market in the fourth quarter despite an easing inflationary backdrop, unseasonably cool weather and disruption cased by the summer riots.
The All Bar One and Toby Carvery operator said robust trading and a reduction in net cost headwinds to circa £55 million gave it confidence in delivering full-year results at the upper end of market expectations.
The positive update was well received with the shares up 9p or just over 3% to 306p, taking 12-month gains to 40% compared with a 14% advance for the FTSE 250 index, reflecting continued recovery from the pandemic, inflationary headwinds, and train strikes.
CEO Phil Urban said: ‘Sales growth has continued to normalise as inflationary cost pressures ease whilst our diverse portfolio of established brands and advantaged estate locations underpin our outperformance against the market.
‘We enter the new financial year armed with a fresh wave of initiatives under our Ignite programme and a full capital investment programme planned to deliver cost efficiencies, increased sales and to further drive market out-performance and increasing profitability.’
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Shore Capital’s Greg Johnson said the positive trading update and ‘excellent’ profit conversion led him to upgrade his 2024 operating profit forecast by around 4% to £302 million, with a flow through to 2025 of similar magnitude to £316 million.
‘With the ongoing deleveraging, we see scope to eventually refinance its securitisation vehicle to further free up cash flow’, added Johnson.
Russ Mould, investment director at AJ Bell commented: ‘Mitchells & Butlers’ big comeback has encountered a few challenges along the way. The owner of Harvester and O’Neill’s has seen a slowdown in like-for-like sales growth for both food and drink over the past nine weeks.
‘Mitchells & Butlers said total sales were up 2.5% in the period, making it the weakest quarter for growth over the past 12 months.
‘You might think a lower rate of inflation would create a more favourable backdrop for consumers and make them more willing to spend money, but it also means that companies like Mitchells & Butlers might find it harder to keep raising prices at regular intervals.
‘It is getting costs under control and that could lead to greater profit margins in time.’
Disclaimer: Financial services company AJ Bell referenced in the article own Shares magazine. The author (Martin Gamble) and the editor (James Crux) own shares in AJ Bell.
