Welcome to HL's reimagined News, Insights and Research experience. Find out more

Share research

Mitchells & Butlers - 2022 in line, encouraging start to 2023

Total revenue was £2.2bn, reflecting 1.1% like-for-like growth over pre-pandemic levels.

No recommendation - No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Prices delayed by at least 15 minutes

This article is more than 1 year old

It was correct at the time of publishing. Our views and any references to tax, investment, and pension rules may have changed since then.

Total revenue was £2.2bn, reflecting 1.1% like-for-like growth over pre-pandemic levels. This echoes the group's most recent guidance.

Underlying operating profit was £240m up from £29m in 2021, which was impacted by covid restrictions. However, inflation-related expenses were up by about £220m against pre-pandemic levels, including a £70m jump in utility costs. This meant profit fell short of the £317m achieved in 2019.

Free cash flow was £121m from a £4m outflow last year. Net debt excluding lease commitments was £1.2bn broadly flat compared to 2021. No dividend was declared.

The first 10 weeks of the current financial year have seen like-for-like sales growth of 6.5%. Mitchells & Butlers expects a full year inflationary cost headwind of 10 to 12% of its £1.8bn cost base, excluding the impact of cost-saving measures.

The shares were up 8.6% following the announcement.

View the latest Mitchells & Butlers share price and how to deal

Our View

Investors can take some comfort from the start to the current financial year. We've seen food sales increase despite last year's strong growth, as well as a strong recovery in drinks sales. Volume growth is finally back on the table in both categories.

But the 6.5% like-for-like sales growth in the first 10 weeks to 3rd December, is not a straight comparison. Last year saw Omicron emerge in late November, and this year we've had the beginning of the World Cup. Both are likely to have flattered sales reported so far this year. The rest of the quarter is likely to compare well too, with the World Cup continuing, and no sign that this year's festive season will be impacted by restrictions.

Further out, we think things could get tougher. There will be no World Cup in the second half, and the full impact of the cost-of-living crisis is still to fully catch up with the UK consumer, with a recession ever-more likely for 2023.

Looking at the underlying story, the group has a decent portfolio, with brands including Harvester, Browns and Miller & Carter. Even though the brands aren't quite in the top tier, they're well diversified across demographics and geographies. That means performance isn't quite as reliant on footfall in any one area.

It's actually the food that has propped up performance, with more expensive orders rather than higher volumes having the greatest impact. The premium brands in the portfolio have been the best performers of late, but the Group also has a significant number of more value-orientated venues. We don't think it can fully avoid fall out from a weaker economy and it remains to be seen if early signs of volume recovery will continue.

Then we have rising costs, a growing concern for the industry. Guidance on cost inflation suggests the impact could be almost as high as last year's total underlying operating profit, unless bold cost cutting measures are taken.

It is a credit to management that its pubs and restaurants have outperformed pre-pandemic levels on a like-for-like revenue basis, but storm clouds continue to loom. With this in mind, we see the decision to keep dividend payments on hold as a sensible one, which will allow continued investment into the estate. This is vital for the group to remain competitive and analysts are expecting a 38% increase in capital expenditure this year to £169m.

With a solid balance sheet backed by considerable property assets, Mitchells & Butlers is better placed than some to ride out the storm. But the valuation now sits above the long-term average, meaning shares are likely to be sensitive to any earnings shocks. Forecasts are already expecting sales to moderate for the rest of the year. Given the uncertain economic outlook and group's guidance on costs, we think it still has its work cut out to achieve market expectations.

Mitchells & Butlers key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

Latest from Share research
Weekly newsletter
Sign up for editors choice. The week's top investment stories, free in your inbox every Saturday.
Written by
Derren Nathan
Derren Nathan
Head of Equity Research

Derren leads our Equity Research team with more than 15 years of experience in his field. Thriving in a passionate environment, Derren finds motivation in intellectual challenges and exploring diverse ideas within his writing.

Our content review process
The aim of Hargreaves Lansdown's financial content review process is to ensure accuracy, clarity, and comprehensiveness of all published materials
Article history
Published: 7th December 2022