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Mon 17th Nov 2014 - Analyst – M&B is in need of a spark after a flat 2014
Analyst – M&B is in need of a spark after a flat 2014: Numis Securities leisure analyst Douglas Jack has argued that Mitchells & Butlers is “in need of a spark, after a flat 2014”. Setting a Price Target of 420p, he changed his share recommendation to ‘Add’ from ‘Hold’. He said: “For M&B’s final results, due on Tuesday (25 November), we forecast PBT falling 1% to £182.1m (consensus: £183.9m). This reflects just 0.6% like-for-like sales growth and our forecast of margins falling 50bps. The company needs to clarify how it is going to generate like-for-like sales and margin growth, without which a resumption in dividends is unlikely before 2016E. Reflecting valuation only, we are moving our recommendation to Add from Hold. Like-for-like sales were flat over H2 (H1 1.1%; 51 weeks 0.6%) and have been negative overall since the company reported a 2% increase in like-for-like sales in Q1 (ending 25 January). Volumes have grown, aided by an enhanced refurbishment programme, investment in trading, better IT systems (now in over 1,000 outlets) and competitive pricing. Ebit margins are falling. We forecast a 50bps decline to 15.95% in 2014E. Like-for-like sales growth was insufficient to offset initial dilution from the Orchid acquisition (initial costs without the synergies), higher pre-opening costs and competitive pricing (which is not appearing to have much impact on overall sales). These headwinds should carry on into 2015E and then ease. 22 new outlets opened during the first 51 weeks. In H1, Ebitda returns were just 14% on freeholds and 18% on leaseholds. Given this, weak like-for-like trading and the Orchid integration, organic expansion has been cut from 40 to 25 openings in 2015E. From the Orchid estate, 23 conversions should have been completed in 2014E, with the balance evenly split between 2015E and 2016E. We cut forecasts by 7% in H2 2014E and are below consensus for 2015E (PBT £201.7m; consensus £206.8m). Our 2015E forecasts assume that like-for-like sales grow by 1%, with margins down 45bps (partly due to dilution from Orchid). With a high quality estate and a double-digit free cash flow yield, M&B’s shares are undervalued, in our view. However, the catalyst for a re-rating is reliant on improving product range, service and amenity, not merely reducing prices (which tends to hurt margins more than it benefits sales). Tuesday’s presentation will be an important indicator as to whether the company is on the right path to returning to sustainable growth.”

Red’s True Barbecue creates restaurant first: a menu with its own travelogue podcast: Fast-growing smokehouse operator Red’s True Barbecue has taken an innovative approach to its latest menu launch, creating a travelogue podcast to accompany the new dishes. The refreshed menu is inspired by the company’s annual pilgrimage road trip to the southern US States, which this year saw the barbecue experts travel across five states in a RV for research and development purposes. Whilst there the team recorded their travelling adventures, including interviews with local Pitmasters, barbecue restaurant owners and the general public. The team has developed four half hour podcast shows, including a roadtrip soundtrack, and is releasing them to coincide with the menu launch today (Monday 17 November). James Douglas, co-founder at Red’s, said: “Our annual pilgrimage is the most amazing trip you can ever undertake, and it’s so valuable to the business, ensuring we constantly innovate, continue to lead the barbecue trend here in the UK and stay ahead of any competition in the market. The new dishes we bring to our believers are totally inspired by this trip - the people we meet, the joints we eat at. For example, The Sleepy James, which is a southern fried chicken breast between two sweet waffles, is inspired by a moonshiner we met at Dodge Gas station in Memphis, an amazing man with incredible stories that really makes the Tennessee podcast. US low and slow barbecue still means little to the majority of UK consumers, so the more we can do to bring this to life and educate, through engaging stories, the better it is for us and for customers. This series of four podcasts, covering Kentucky, Tennessee, Arkansas and Texas will hopefully shine a light on true American barbecue, and in the process make our customers hungry for some authentic barbecue!” Podcasts are available free on iTunes Store and Soundcloud.

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