Leading analyst Simon French has downgraded his earnings-per-share forecast for Mitchells & Butlers (M&B) following a “disappointing” trading update.
Yesterday M&B reported a 1% fall in like-for-like sales in the nine weeks to 21 September, but said it expected full-year results to be in line with expectations.
French, of Panmure Gordon, reiterated his Sell recommendation and 310p Target Price, implying a 24% potential downside.
He said: “Following yesterday’s disappointing trading update we have downgraded our FY 2014-15E EPS forecasts by 4-6% per annum. This reflects our assumption of flat like-for-like sales growth and a 20bps margin decline in FY 2014E, below management expectations of 1.5-2.0% like-for-like sales growth and flat margins.
“On our revised forecasts the stock trades on a CY 2014E adjusted EV/EBITDAR of 8.0x which appears expensive for c9% CAGR in EPS over the medium term.”
French added: “In FY 2015E we have downgraded our EPS forecast by 5.8% to £204m PBT (39.0p EPS) based on 1.0% like-for-like sales growth and 17bps margin improvement. Our FY 2013E forecast nudges up by 1% to £180m (33.5p EPS) in line with consensus expectations.”
In a conference call for analysts, M&B said like-for-likes for the first six weeks since the last trading update grew c1%, which French said implies that in the last three weeks like-for-likes must have fallen c5%.
“We get concerned when companies split out short trading periods; looking at the last 23 weeks like-for-like sales are up 0.6% which we think provides a better indicator of medium-term growth prospects. The group indicated that H2 margins were up 40bps which is impressive but we are concerned that there may be little else left to squeeze.”
