MIDAS SHARE TIPS: After a horrid time during lockdown, get a taste of the profit with Mitchells & Butlers as Britain goes back to the pub at long last
Whether you’re a fan of a Sunday pub lunch or like a night out on the town, chances are you’ve stepped into a Mitchells & Butlers property on more than one occasion.
The company’s pub and bar portfolio is eclectic, encompassing everything from Browns Brasseries & Bar, the famous Spaniards Inn on London’s Hampstead Heath, through to the Harvester and Toby Carvery brands.
Like the rest of the hospitality industry, M&B had a torrid time during lockdowns, cutting 1,300 jobs as sales slumped. The cherry on top of a lurid cocktail for investors was a discounted £350million fundraising backed by the company’s biggest shareholder, a consortium called Odyzean.
Cash on tap: Mitchells & Butlers pubs and bars are bouncing back, with sales higher than before the pandemic
The new shares were issued at a 36 per cent discount to M&B’s share price before the fundraising was announced. The issue was a bitter draught to shareholders in the short term as they saw the value of their investments tumble, but the management, led by Phil Urban, says the action was necessary to ensure the company could service its debts while outlets remained closed.
The money raised, he said, would also help the business to bounce back more strongly when life returned to some form of normal.
Now that going out is back on the menu, the latest figures from M&B suggest that punters are making up for lost time. Over the past eight weeks, sales were at 104 per cent of their pre-pandemic levels for the same time of year, although Urban says the recovery is ‘volatile’, with food-led pubs recovering more strongly, particularly at the premium end of the market.
The company is making strides towards financial stability too. Analyst Douglas Jack, at Peel Hunt, points out that M&B has £64million less debt than it had two months ago. He has also upgraded his profit forecasts by £10 million. He believes the company’s valuation is at an all-time low.
However, for investors interested in a sip of Mitchells & Butlers, there may be a fly in the ointment, or perhaps a worm in the bottom of the tequila when it comes to the firm’s share structure.
Odyzean, formed by billionaire currency trader Joe Lewis and horseracing owners JP McManus and John Magnier, now owns more than half of the business.
It has already indicated that it is happy to ride roughshod over the wishes of other investors by backing the re-election of a long-serving chairman when a quarter of total shareholders voted against him. In the end, it is possible that Odyzean will acquire the entire business, but for now, the remaining investors would be forgiven for feeling they are at the back of the queue for the bar behind these major shareholders.
It’s something to consider before you decide whether or not to get a round in.
MIDAS VERDICT: Mitchells & Butlers has had a horrid time during the pandemic, but the company is now in a stronger financial position. This may enable it to make acquisitions as other companies fail to prosper during the new normal.
Early indications for post-pandemic sales are good and the company’s shares look relatively cheap. They closed on Friday at £2.51 compared with well over £4 before the pandemic.
If you can cope with the wishes of the majority shareholder, and take a glass-half-full view about the hospitality industry’s ability to recover, the shares are worth a sip.
Traded on: Main market Ticker: MAB Contact: mbplc.com or0121 498 4000
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