Mitchells & Butlers is on track for like-for-like sales growth of around 4.2% this year. However, growth in the final quarter slowed to about 3.1%, with some weakness noted in the London area and the group\u2019s more premium brands.<\/p>\n
Management remains confident of meeting consensus forecasts, which imply operating profit growth of around 5% to \u00a3327mn. <\/p>\n
The group sees itself as well positioned to cope with cost inflation next year, which it expects add around \u00a3130mn to its cost base.<\/p>\n
The shares fell 3.6% in early trading.<\/p>\n
Our view<\/p>\n
Mitchells & Butler\u2019s looks set to deliver a decent full-year outcome in a tricky environment. But slowing sales growth against a backdrop of stubborn inflation saw sentiment weaken following its full-year trading update. <\/p>\n
A long track record of market-beating sales growth is testament to the relentless focus on customer satisfaction and the diversity of its brands, which can help it react to the market conditions of the day. The broad portfolio includes family-friendly restaurants like Harvester and Toby Carvery, and more premium offerings such as Miller & Carter steakhouses. There are also popular high-street watering holes, including O’Neill\u2019s and All Bar One.<\/p>\n
The pub sector is not one that screams high tech, but we\u2019re impressed with the group\u2019s use of technology which has helped to improve both customer engagement and management of the supply chain.<\/p>\n
A focus on operational excellence has helped an impressive recovery in profits, but higher employment costs have constrained margin growth this year. Next year, cost increases are expected to outpace wider inflation and rise around 6% prior to mitigation, placing further pressure on the bottom line. A potential tax grab in the Chancellor\u2019s next Budget and fragile consumer sentiment are other risks we are monitoring. <\/p>\n
With this in mind, we see the decision to keep dividend payments on hold as sensible, allowing continued investment into the business. We’d also like to see some more progress on bringing down debt levels.<\/p>\n
But looking ahead we believe the group\u2019s focus on customer satisfaction and strong branding means there’s scope for margins to rise again should cost-growth stabilise.<\/p>\n
Whereas competitors have been trimming their estates Mitchells & Butlers has made some modest additions to its footprint. Given the supply that\u2019s come out the market, we support this move, as long as site selection is prioritised. Existing sites are also being upgraded, which looks to be an important contributor to the outperformance of its brands.<\/p>\n
The group looks well-placed to continue growing its market share. And the additional pressure that weaker competitors find themselves under could see those trends accelerate. We think the operational delivery of recent years has been broadly recognised by the market. The challenging near-term outlook means that further catalysts may be few and far between. <\/p>\n
Environmental, social and governance (ESG) risk<\/p>\n
The food and beverage industry is medium-risk in terms of ESG, though some segments, such as agriculture, tobacco and spirits fall in the high-risk category. Labour relations and supply chain management are key risks in this industry. Product governance is an area of concern industry-wide, particularly for companies operating in markets with strict quality and safety regulations. Other risks can vary by sub-industry, but community relations and resource use tend to impact most companies in this sector either directly or through their supply chains.<\/p>\n
According to Sustainalytics, Mitchells & Butlers management of ESG risks is average. While many of its brands are food led and family friendly there is a strong responsible drinking policy in place. In terms of ingredient sourcing the lack of Supplier Environmental Certification is something we’d like to see addressed. Labour relations is also an area of weakness with no union recognition or working hours policy identified. And there is room for improvement in both the company’s whistleblower policy and ESG reporting standards.<\/p>\n
Mitchells & Butlers key facts<\/p>\n
Forward price\/earnings ratio (next 12 months): 8.7<\/p>\n
Ten year average forward price\/earnings ratio: 10.9<\/p>\n
Prospective dividend yield (next 12 months): 0.0%<\/p>\n
Ten year average prospective dividend yield: 0.8%<\/p>\n
All ratios are sourced from LSEG Datastream, based on previous day\u2019s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn\u2019t be looked at on their own \u2013 it\u2019s important to understand the big picture.<\/p>\n","protected":false},"excerpt":{"rendered":"Mitchells & Butlers is on track for like-for-like sales growth of around 4.2% this year. However, growth in…\n","protected":false},"author":2,"featured_media":163493,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[84,4176,4174,4175,56,54,55],"class_list":["post-163492","post","type-post","status-publish","format-standard","has-post-thumbnail","category-personal-finance","tag-business","tag-finance","tag-personal-finance","tag-personalfinance","tag-uk","tag-united-kingdom","tag-unitedkingdom"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/163492","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/comments?post=163492"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/163492\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media\/163493"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media?parent=163492"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/categories?post=163492"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/tags?post=163492"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}