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Tue 2nd Jun 2015 - Analysts reflect on M&B progress after site visits
Analysts reflect on M&B progress after site visits: Leisure analysts have issued positive progress reports on Mitchells & Butlers after the company hosted site visits. Numis Securities analyst Douglas Jack issued an add note with a price target of 500p. He said: “Yesterday’s site visit to Hertfordshire involved looking at Miller & Carter, Toby Carvery and Premium Country Dining (PCD). Competition for new sites has increased, but the company is making progress operationally. This and easy comparables bodes well in relation to H2 trading and meeting full year expectations. Miller & Carter (M&C) is generating top quartile like-for-like sales growth amongst M&B’s brands, largely due to customers trading up. Product quality is continuing to improve, aided by increased supply chain knowledge. All its steaks are matured over 30 days (up from 28 days), and the company is likely to move to 33 days, with trials for 50 days. All managers and deputy managers are promoted internally. Toby Carvery has the lowest staff turnover (at 44% versus a 77% company average) of all M&B’s brands. The brand is successfully selling breakfasts and the quality of roast lunches is at a level that cannot easily be replicated at home. Covers are typically turned 7x on Sundays (with gross margins at c.68% on food and c.79% on drink). Harvester and the Heartland brands are benefiting from new, improved menus, refurbishments and stronger brand management. Like Toby, their food pricing is flat (small food price increases are limited to the premium brands, like M&C and PCD), but average spend per head is being boosted by stretching menus to encourage trading up. The new EPOS tills and inbuilt payment systems are saving five to ten hours of management time per week. Iserve technology is helping orders to be processed more quickly, reducing waiting time and increasing table turns in peak sessions. Kitchen management software has reduced the risk of errors. Future IT developments include table management and online payments. Of the 173 acquired Orchid pubs, 40 should be converted to M&B brands this year, out of 89 conversions in total, with a further 80 sites switching into the Heartland estate in October. Orchid’s Pizza Kitchen and Bar may be expanded in the Heartland estate. M&B should benefit from Orchid’s strength on waste management and cost control. We believe M&B is making gradual operational progress, in addition to which it should benefit from easy comps in H2. In H1, the company achieved 1.7% like-for-like sales (vs 1.1% comp); our full year assumption requires just 1.3% growth (vs a 0.0% comp) in H2. In our view, forecasts have a slight upgrade risk.” Cenkos leisure analyst Simon French has issued a ‘Buy’ note on Mitchells & Butlers shares, with a price target of 456p, after the company tour. He said: “Yesterday the group hosted a series of trade visits to sites around north London encompassing the Miller & Carter, Toby Carvery, Premium Country Pubs and O’Neills brands/formats. We came away very encouraged by the progress the group continues to make in refining its customer propositions and thus scope for expansion over the medium-term. The Orchid integration appears to be absolutely on plan and there may be group wide benefit from adopting Orchid’s cost control and waste management culture. The strength in depth of the management team has also improved following recent hires in marketing and operations. The stock trades on a CY 2015E adj EV/Ebitdar of just 7.9x and comparatives are relatively undemanding over the summer months with the group reporting broadly flat like-for-like sales for the 23 weeks to 20 September 2014. With circa 40% of the group’s assets well-positioned to benefit from customers trading up we believe the stock remains a compelling ‘Buy’.”


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