A leading analyst has said that he expects Mitchells & Butlers (M&B) to only report c.1% like-for-like sales growth despite what should be a strong festive season when it updates the market at the end of this month.
Jamie Rollo at Morgan Stanley said: “We expect minimal LfL sales growth for the first 17 weeks of the year given LfLs have already been reported as flat for the first eight weeks, the weather has been poor (although not as bad as the snow last year), and so even a good two week festive season is unlikely to move the dial much.
“M&B is offering a number of deals across its brands this January, suggesting it may now be focusing on driving volume, and we will look for any signs of a shift in strategy. Encouragingly, Coffer Peach reported better November trading with managed pub LfLs +2.4%. However, M&B has underperformed the sector for three years now, and we need to see some evidence of a LfL sales recovery before we have faith in management’s target of 1.5-2.0% for the full year given the poor start and tougher comps in later quarters (MSe +1%).”
For the full year, Rollo forecasts 1% LfL sales growth and flat EBIT margins at 16.5% and said that the company faces cost pressure across wages, utilities and food price inflation, as well as from accelerated openings and increased IT spend.
He said: “This leads to our 2014 forecasts of sales of £1,945m (+3%), EBIT of £320m (+3%), PBT of £192m (+5%) and EPS of 36.4p (+5%), in-line with consensus. We remain Equal-weight as we struggle to see upside to the investment case, with LfL sales underperforming peers, margin expansion slowing, and FCF still weak.
“With a dividend resumption unlikely this year given the likely step-up in pension contributions, we see little to drive the shares and think the cheap valuation is justified, given the current pension deficit is c. 30% of market cap or c. 1x EBITDA and likely to grow. We will look for any update on the triennial pension negotiations, although we do not expect to hear anything until the June deadline.”
