Mitchells & Butlers Plc

Mitchells & Butlers Plc (LON: MAB) is an FTSE 250 listed travel & leisure Company, engaged in the business of managing pubs and restaurants. 

The Company will release half-year 2021 results in May 2021.

Rationale for Valuation – Expensive at GBX 354.65

• The pub chain is running at a limited capacity due to Covid-19 restrictions, weakening the trading performance of the Company.
• On the profitability front, MAB had a lower EBITDA margin and Net margin than its industry median of 20.6% and 6.2%, respectively.
• The Company had a lower current ratio of 0.34x compared to its industry median of 0.71x, indicating the lower liquidity levels.
• From the technical standpoint, shares were trading at a 90-day RSI of around ~62.14, reflecting a downtrend in the stock.

Key Risks

• The hospitality sector could be adversely hit by Covid-19 pandemic related restrictions.
• Political changes and regulatory changes could negatively impact the trading performance of the Company.
• The geopolitical changes and recession in the economy could hamper the Company's operations.

Recent News

On 15 February 2021, MAB had shown its willingness to raise £350 million through an open offer. Odyzean will provide support to the Company during these difficult business conditions. The Company had also reached the agreement with the banks for a new £150 million 3-year unsecured revolving credit facility.

Trading Update (for 14 weeks ended 02 January 2021 (Q1 FY21), as of 07 January 2021)

• MAB had reported a decline of 67.1% in its total sales during Q1 FY21 compared to Q1 FY20.
• The Company had reduced its operating costs and discretionary capital expenditure to a minimum.
• MAB had a cash balance of £125 million as of 02 January 2021 and had drawn all available facilities.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: EV/Sales Approach (NTM) (Illustrative)

Conclusion

The Company had depicted a significant decline in its top-line business during Q1 FY21, with the introduction of the new regional tier system. MAB had a monthly cash burn ranging from £35 million to £40 million before its quarterly debt payment of £50 million. Furthermore, the Group had a cash balance of just £125 million as of 02 January 2021. However, MAB had intended to raise £350 million through equities to tackle existing business challenges. The stock made a 52-week low and high of GBX 92.30 and GBX 424.00, respectively.

Based on the various business challenges mentioned above, we have given an “Expensive” recommendation on Mitchells & Butlers Plc at the current price of GBX 354.65 (as on 16 February 2021, before the market close at 8:05 AM GMT), and we will revisit our stance once the restrictions are lifted.  

*All forecasted figures and Industry information have been taken from Refinitiv, Thomson Reuters.

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