Mitchells & Butlers continues to build up its warchest with news of the £373m disposal of 333 pubs to a private equity group.
The company wants to concentrate on higher margin food sales, and has sold the late night bars and drinks-led pubs - which made £35m profit last year - to private equity group TDR Capital. This takes the proceeds of recent disposals - including Hollywood Bowl and 52 lodges - to around £500m, and the cash will be used to accelerate its move into the eating out market, in particular its Harvester and Toby Carvery brands. The company still has net debt of around £2bn, however, and as the deal looks like it will be initially dilutive to earnings, M&B's shares have dipped 2.8p to 293p. Mark Brumby at Langton Capital said:
This is the largest pub deal for many years and the first involving a private equity firm and cash for some time. The disposal, though it will be dilutive, is in line with M&B's stated strategy and will accelerate both its roll-out of retail-park based food-led units, any acquisitions that it may have in its sights and the reinstatement of the group's dividend.
Shareholders cannot realistically have expected much more and, though the sale will reduce earnings per share from in the region of 28p to around 24p, we acknowledge that this will be subject to upward pressure as the proceeds are reinvested and await news on that front with interest.
Paul Hickman at KBC Peel Hunt issued a buy note on the business, saying:
This is a major step, coming faster than most expected, in executing the change strategy articulated by the new chairman, John Lovering. It should facilitate the conversion of existing outlets to the six core brands as well as acquisitions of suitable assets at higher returns.
