- First half like-for-like sales up 7%
- Momentum continues into second half
- Full year profit expected to be at top end of expectations
Pubs group Mitchells & Butlers (MAB) smashed first half sales and profit forecasts and said the full year was likely to be at the top end of expectations, sending shares in the All-Bar-One and Toby carvery operator to the top of the FTSE mid-cap leaderboard, gaining as much as 14% to 303p.
Over the last year the shares are up 44%, comfortably ahead of the FTSE 250 return of 7% driven by continued recovery and momentum from the pandemic.
CONTINUED STRONG PERFORMANCE
For the 28 weeks to 13 April like-for-like sales increased 7%, more than 2% ahead of the market, driving total sales growth of 9% to £1.39 billion. A mixture of subsiding inflationary pressures and progress on cost savings led to a widening in the operating margin to 11.7% from 7.8% in the first half of 2023.
Consequently, adjusted operating profit jumped 64% to £164 million and a strong period of cash generation totalling £137 million before bond amortisation has led to a reduction in net debt to £1.03 billion from £1.19 billion.
Chief executive Phil Urban commented: ‘Continued like-for-like sales outperformance against the market coupled with easing inflationary costs and focus on efficiencies has resulted in very strong profit recovery for the period.’
Strong trading momentum has continued into the second half with like-for-like sales growth of 5.3% in the latest four weeks following Easter. Full year cost headwinds are now anticipated to be around £55 million, £10 million lower than previously expected.
‘As trading continues to be strong, we have confidence that the current year outturn will be at the top end of consensus expectations, with momentum for further progress going forward into FY 2025’, the company said.
ANALYST UPGRADES EXPECTED
Greg Johnson at Shore capital described the first half performance as ‘stellar’ and said he sees scope for ‘meaningful’ upgrades.
‘We see today’s interim results from Mitchells & Butlers as highly encouraging, with profitability up strongly, ahead of our forecasts and with estimates likely to move up, whilst cash flow and the balance sheet continues to strengthen’, he said.
Jefferies said the debt reduction story which paused during the pandemic has now returned and should result in a ‘material’ debt-to-equity transfer representing approximately 25% of the current market capitalisation over the next three years.
This refers to an increase in the amount of profit accruing to shareholders as debts are reduced.
Investment director at AJ Bell commented: ‘Mitchells & Butlers finally seems to be getting its act together and for all the criticism that its brands like Harvester and O’Neill’s are tired, they seem to be resonating with the cash-strapped public in the current environment.
‘Full-year results are guided to come in at the top end of expectations and the company seems quietly confident that its current run of success has momentum.’
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Martin Gamble) and the editor (Steven Frazer) own shares in AJ Bell.
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