A leading analyst has said that he hopes the new chief executive at Mitchells & Butlers (M&B) focuses on improving return on capital across the group’s existing pubs and slows its current rate of expansion.
Although Jamie Rollo at Morgan Stanley said the lack of an update on the search for a chief executive was a little disappointing, he expects news “here soon”.
He said: “We hope the new chief executive focuses on improving return on capital in its existing pubs, where we see upside from a return on top-line outperformance and a return to previous margins.
“We also hope the company slows its rate of expansion, such that FCF improves materially to fund a dividend from 2013.
“We think M&B has strong brands and high asset backing, is benefitting from solid long-term eating out trends, is implementing a cost saving plan to offset external cost inflation, and will benefit from stronger corporate governance post the appointment of a new chief executive and beefed-up board.”
Growth over the last 14 weeks for the group was hit by Euro 2012 (consumers tend to eat out less) and the wet weather, with the Diamond Jubilee offsetting some of this headwind (+4% LfL sales growth over
the five days of the Jubilee).
Rollo said: “While these results were weaker than the +6.1% growth at JDW for the 11 weeks to 8 July (and GNK +7%), we note that Euro 2012 is a supportive element in JDW’s more wet-led business and the wet weather was a benefit given its high street exposure. Like for like food sales growth in the last 14 weeks was +2.0%, while drink saw a decline of 1.4%. Given the encouraging growth in the year so far, we think the company is well placed to hit our full year revenue estimates and see modest upside risks.”
For the full year, Rollo expects sales of £1.9bn (+4%), EBIT of £300m (+2%), PBT of £170m (+9%), and EPS of 30.9p (+11%), leaving him in-line with consensus of 30.7p.
He said: “Margins in H1 fell 70bps reflecting the skew of energy and food costs (£12m) to H1. We expect total cost savings from purchasing, logistics and the central reorganisation of £35m in H2 leading to a 10bps YoY margin increase. While the company does not comment specifically on margins, we think it is on track to deliver this given its confident outlook statement.
“The shares have increased modestly in 2012 so far and trade at 8.4x 2012e P/E and 6.9x EV/EBITDA, a discount to its managed pub peers which we think inappropriate for a leader in the sector. We remain Overweight.”
