Mitchells & Butlers PLC (LSE:MAB) shares rose 9% to 278p on Friday after what ShoreCap called “excellent” full-year results and an encouraging start to the new financial year.
The broker said the pub and restaurant group delivered a performance ahead of expectations, with operating profit rising to £330 million. That was £18 million higher than last year and about £5 million ahead of its estimates.
Earnings per share came in at 31p, up around 17% and slightly ahead of forecast.
ShoreCap noted that the second half of the year held steady despite the drag from last year’s budget-driven cost increases.
Importantly, the group’s cost outlook has not worsened following this week’s Budget. Mitchells & Butlers kept its estimate of £130 million of additional cost inflation for the year, around 6%.
According to ShoreCap, the company needs like-for-like sales growth of just over 3% to offset that inflation once its Ignite efficiency programme is included.
The new financial year has started well. Like-for-like sales were up 3.8% in the first eight weeks, a level that ShoreCap said could allow the group to hit forecasts even if growth dips below 3%.
Management expects the eating-out market to expand by 2.4% in 2026, and ShoreCap believes Mitchells & Butlers can continue to trade ahead of that rate.
Debt reduction was another bright spot. Net debt fell by about £150 million to £843 million. ShoreCap described the net debt to earnings ratio, now a little above two times, as conservative given the strength of cash flow.
The improvement meant free cash flow exceeded mandatory bond repayments, although the company again chose not to reinstate a dividend as it focuses on strengthening the balance sheet.
ShoreCap continues to view a refinancing of the group’s debt as the main trigger for a possible re-rating of the shares. Net asset value increased 10% to 476p, which leaves the stock trading at roughly a 50% discount to book value.
“MABs trades on 8 times earnings, 6 times EBITDA excluding leases and a high single-digit free cash flow yield,” the broker said. “We continue to see these metrics as too low given the ongoing robust performance and rapidly deleveraging balance sheet.”