Mitchells & Butlers Plc – Operating with Strong Balance Sheet

Birmingham, United Kingdom-based Mitchells & Butlers PLC (LON: MAB) is a FTSE 250 listed operator of managed pubs and restaurants.

In July 2020, the Company will release its trading update.

COVID-19 Financing Update (as on 12^th June 2020)
The Group said it has made new agreements with its creditors, which provide more liquidity and improved financial flexibility to handle the Coronavirus lockdown. The Group has been furloughing of more than 99 per cent of the workforce and has cancelled all discretionary capital expenditure. The Company has talked with creditors and obtained committed unsecured liquidity facilities from its main relationship banks amounting to GBP 250 million through to 31^st December 2021, which includes the provision of additional facilities totalling GBP 100 million and extension to the term of the existing GBP 150 million facilities. Under the Government-backed COVID-19 Large Business Interruption Loan Scheme, the GBP 100 million additional facilities are structured. Presently, the Group’s cash balances were GBP 130 million, with a GBP 150 million of fully drawn down the existing facilities. During the closure, the EBITDA loss has stabilised at around GBP 15 million (including rent) in four-week period.

Share Price Performance

1-Year Chart as at June-17-2020, before the market close (Source: Refinitiv, Thomson Reuters)

Mitchells & Butlers Plc’s shares were trading at GBX 217.10 on 17^th June 2020 (before the market close at 8:23 AM GMT+1), which was up 1.45% against the last day closing price. Stock 52 weeks High and Low are GBX 483.00/GBX 92.30.

From the technical standpoint, its shares were trading well above its short-term support level of 20-day simple moving average prices, which reflects an uptrend in the stock and carrying the potential to move up further.

Valuation Methodology


Valuation Metrics

(Source: LSE)

As on 29^th May 2020, the Price to Earnings, EV/EBITDA and Price to Book multiples of the MAB were 5.4x, 5.7x and 0.4x, respectively and the same multiples were lower as compared with the Travel & Leisure industry. It is reflecting that the company is trading at a lower multiple as compared to its peers.

Growth Prospects and Risk Assessments
The company’s like-for-like sales increased by 3.5% in the first quarter of 2020. Total sales have surged by 2.7% over the full year to date (4th January 2020). The UK economic and political environment stays uncertain. The group’s performance was negatively impacted by the outbreak of COVID-19.

Conclusion
The group has a strong balance sheetwith material cash resources. However, the group has been successful in partially offsetting high industry inflation with the help of the efficiency programme undertaken by it, coupled with a robust business model. As part of these agreements, the Company has committed to not to pay an external dividend, repurchase bond debt, or conduct share buybacks or until the end of its financial year ending September 2021 at the earliest.MAB is confident of significant growth opportunities in the UK and internationally, though it remains cautious about short-term market conditions. The Group stays attractive, and once restrictions are lifted, it will return to its growth track.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance at the current price of GBX 213.40 (as on 17^th June 2020, before the market close at 8:20 AM GMT+1) and will recommend fresh buying at the right time.

Marston's Plc – Taken Effective Actions to Keep the Balance Sheet Strong Amid the Covid-19 Crisis

Marston's PLC (LON: MARS) is a FTSE 250 listed group, which is engaged in running pubs and beer brewing.

The Group will hold its General Meeting on 25^th June 2020. On 26^th June 2020, the Company will release its interim results.

Recent Development
On 22nd May 2020, the Group said it had formed a new joint venture partnership with Carlsberg UK Holdings Limited. The newly formed JV group would be known as Carlsberg Marston's Brewing Company (CMBC). In the deal, the Company would receive a 40 per cent stake in the newly formed entity and a cash equalisation payment of up to GBP 273 million. On the same time, Carlsberg UK is likely to receive a 60 per cent stake in the newly formed group once the deal is executed.

COVID-19 Financing and Dividend Update
On 14^th May 2020, the Company provided the financing and dividend update. During the current period, the Group continue to take a highly prudent approach in the management of the business. Marston’s said it had secured an additional GBP 70 million to see it through the pandemic and cut its dividend. The Company remains committed to the overall strategy to reduce the Company's leverage over the medium term and has made a good progress to date towards the debt reduction targets.

Share Price Performance

Daily Chart as on 17^th June 2020, before the market closed (Source: Refinitiv, Thomson Reuters)

Marston's Plc’s shares were trading at GBX 66.70 on 17^th June 2020 (before the market close at 8:25 AM GMT+1), which was up 2.30% against the last day closing price. Stock's 52 weeks High is GBX 133.80 and Low is GBX 18.40.

From the technical standpoint, its shares were trading well above its short-term support level of 20-day simple moving average prices, which reflects an uptrend in the stock.

Valuation Methodology 
 
 

Valuation Metrics

(Source: LSE)

As on 29^th May 2020, Price/Sales multiple of the MARS was 0.3x, which was lower as compared with the Travel & Leisure industry. Hence, it is reflecting that the company is trading at a lower multiple as compared to its peers.

Growth Prospects and Risk Assessments
The trading multiples are undervalued compared to its peers. The Group has a strong and proven model of creating long term shareholder value. The firm is operating with a strong balance sheet position, which reflects its strength to weather the short-term uncertainties. Moreover, the operations are currently impacted by travel restrictions due to the Covid-19 outbreak. The Group is also exposed to the foreign currency risk.

Conclusion
The deal would allow Marston’s to focus on its pub estate and reduce its debt load. The Group is building a new beer company by a collaboration of two organisations, with shared values and robust history. Presently, the group is holding a robust state of the balance sheet with debt reduction and substantial cash position. Further, the Group has taken several measures for strict cost control to weather the volatile market. Despite a recent setback, the restaurant industry has a long road ahead. There are chances that full recovery could take some time, higher than other non-essential industries; but new avenues within the restaurants' space like delivery, takeout and other technological development could support their top line.

Over the four years (FY15 – FY19), the company’s revenue surged from GBP 878.60 million in FY15 to GBP 1,173.50 million in FY19. Compounded annual growth rate (CAGR) stood at 7.50 per cent.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance at the current price of GBX 64.82 (as on 17^th June 2020, before the market close at 8:20 AM GMT+1) and will recommend fresh buying at the right time.
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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