Mitchells & Butlers, the pubs group whose brands include Harvester, Toby Carvery and All Bar One, is upbeat about its prospects as it continues to grow its food business.
The company, which bought 173 pubs from Orchid for an initial £266m, reported full year profits down from £142m to £123m. Like for like sales rose 0.6% last year, but have risen 2.4% in the first eight weeks of the current year.
Earnings per share rose 1.2%, including Orchid, but operating margins fell by 50 basis points reflecting the integration of the acquisition and increased closure costs. It is concentrating on growing food sales, with around three-quarters of turnover coming from consumers eating in its pubs and restaurants.
So like for like food sales grew 0.9% compared to a 4.3% decline last year.
Chief executive Alistair Darby said:
The actions we have taken are gathering momentum.. Whilst we continue to operate in a challenging and competitive market, we are making real progress and we have confidence in our future success.
Despite being the largest UK operator of managed pubs and restaurants, we have only 3% of this market and so there are significant opportunities for us to grow further.
The upbeat tone has sent shares in the company - which was tipped by some as a rival bidder to Greene King for Spirit Group before that deal was consumated - 5.5p higher to 354.5p. Numis analyst Douglas Jack said:
With a high quality estate and a double-digit free cash flow yield, M&B’s shares are undervalued, in our view. The catalyst for a re-rating is reliant on improving product range, service and amenity driving up like for like sales, margins and returns. There are early signs of this, with like for like sales up 2.4% during early 2015.
However the company has passed its dividend, which Oriel said was disappointing:
Dividend payments have been suspended since 2008. The board will continue to monitor the cash flow generation before taking a decision.
