Two months after reporting a return to like-for-like sales growth, pubs-to-restaurants group Mitchells & Butlers (MAB) says trading got even better over the Christmas period. However, sales growth has since slowed going into 2017 which leaves us cautious on the stock.
A festive trading boost helps to fuel the share price rally that’s been in place since November 2016, but fails to stir widespread enthusiasm from the analyst community. They say it is too early to start changing earnings forecasts.
LET DOWN SO MANY TIMES
The Harvester and O’Neill’s owner has disappointed the market for years with trading. It’s been particularly upsetting for shareholders as most other quoted pub and restaurant business have enjoyed solid growth.
The turning point came on 22 November 2016 when it reported 0.5% rise in like-for-like (LFL) sales for the previous eight weeks. That compared with 0.8% drop in LFL sales in the year to 24 September 2016.
The shares staged a major comeback from early December, moving from a low of 224.9p to close at 260.2p last night (12 Jan).
The Christmas trading update now pushes the stock 4.7% higher to 272.4p.
SALES GROWTH ACCELERATED... THEN SLOWED
Mitchells & Butlers says like-for-like sales increased by 4.7% in the four weeks to 7 January. Total sales have increased 2.3% in the year to date.
The company has spelled out the exact like-for-like sales trends in the accompanying table.
| Like-for-like sales | |||
| 8 weeks to | 7 weeks to | 15 weeks to | |
| 19-Nov-16 | 07-Jan-17 | 07-Jan-17 | |
| Total | 0.5% | 2.9% | 1.7% |
| Food | 0.2% | 2.8% | 1.6% |
| Drink | 0.6% | 2.9% | 1.7% |
| Source: M&B |
Most important is the fact that sales growth has actually eased since Christmas, albeit still more than three times the level seen in October and November.
Chief executive Phil Urban comments: ‘This is an encouraging performance, building on positive momentum from earlier in the year.
‘We are starting to benefit from the many initiatives we continue to put in place, which gives us confidence in successfully delivering our strategic priorities going into the new year and a performance in line with the board's expectations.’
MIXED VIEWS FROM ANALYSTS
Analysts aren’t all enthusiastic. Investec reiterates its ‘sell’ rating and says there are considerable risks hanging over the stock. It says the valuation is too rich in light of competition, rising cost inflation and execution risk about its capital expenditure programme.
Canaccord Genuity shows a bit more enthusiasm, saying it is encouraged by the company’s trading. However, it says it is too early to upgrade earnings forecasts. It believes the shares remain too cheap and has a 350p target price. That is twice the level at which Investec thinks the shares are worth (174p).
