Leading analyst Geof Collyer has said that Mitchells & Butlers (M&B) will need a much stronger performance in H2 if it’s to recover its position, and a “Herculean effort” is still required to turn around the bottom quartile of the estate.
M&B yesterday reported a 2% rise in like-for-like sales in the 17 weeks to 25 January, helped by a 2.6% rise in sales across the three-week festive period to 4 January and milder weather compared to last year.
Collyer, of Deutsche Bank, said like-for-likes were in line with his expectations against a “very weak comp period last year when lfls were -0.3%”.
“This demonstrates the acceleration over the December festive period from a flat first eight weeks of Q1. Overall, we think that the +2% lfls growth is better than the market expectations of c.+1% to +2%, but still leaves M&B at the bottom of peer group performance.
“If the group is going to recover its position - which is currently propping up the lfls league table - then it will need a much stronger performance in H2’14 / and into FY’15. There is little evidence of this as yet. We do not expect any changes to forecast today, with Deutsche Bank and the market looking at c.+3% EBITA growth for FY’14E.”
Collyer, who has a Hold recommendation for M&B at a Target Price of 435p, said there’s been “progress” but a “Herculean effort” is still required to turn around the bottom quartile of the estate.
“There has been progress in all of the brands in Q1. However, we still believe that whilst trading in 75% of the estate has been up there with the rest of the sector, and the group will have also been doing well in London, the problem for M&B is whether the group can turn around the bottom quartile of underperforming pubs.
“Sorting this out is the main upside potential in the short term, though this is also the most price sensitive part of the estate, as M&B discovered last year when food volumes fell for some brands by c20%.”
