A leading analyst has said that improved margins at Mitchells & Butlers (M&B) should help cover-up for weak sales growth in FY’13.
Geof Collyer at Deutsche Bank said: “The shares in the company have fallen c.5% since its last trading update. It will take a significant outperformance over management’s expectations for the stock to move up from here which is too uncertain under the given circumstances. Hold. The ‘new’ CEO has now been in place for a year, so we are looking for an update on some committed plans after his honeymoon period.”
The analyst said that nothing material has changed since the company reported its 51 wks trading update.
He said: “At that stage, M&B’s underlying sales were up +1.0% with subdued lfls of +0.4%. The management attributed this downbeat lfls performance to an industry-wide slowdown during the first three weeks in September (CPBT Sep’13 lfls were +0.4%) and strong comps from the same period last year.
Despite muted sales growth, the management was confident on meeting its profitability expectation with improved margins in H2’13. Our FY’13 EBITA is at £310m and assumes a margin expansion of c. 28bps over previous year (implying H2’13 margins up 25bps).”
Given M&B’s food focus, Collyer expects the current trading commentary to be closer to 2% than the 4% of JD Wetherspoon and Spirit.
He said: “Management has given muted guidance for FY’14 (flat margins with an increase in lfls growth). With the weak revenues in FY’13 and muted FY’14 guidance, we remain cautious for FY’14E with sales growth of +3.8% (lfl sales +2.0%) and EBITA of just 3% that assumes 13bps lower margins than FY’13. Our EPS forecast is c. 1% behind consensus (DBE 35.8p vs. consensus 36.1p).”
