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Do you need to be drunk to buy shares in Mitchells & Butlers?

Mitchells & Butlers (MAB.L) shares fell after the pubs and restaurants group said sales growth had eased in the past two months and that its outlook remained ‘uncertain’.

 
Do you need to be drunk to buy shares in Mitchells & Butlers?

Mitchells & Butlers (MAB.L) shares slumped on Thursday after the pubs and restaurants group said sales growth had eased in the past two months and that its outlook remained ‘uncertain’.

Coming amid management turmoil at the All Bar One owner, the disappointing interim statement could lead investors to think that they would need to be blind drunk at one of its pubs to buy shares in M&B.

Analysts, however, are divided.

‘We remain of the view that M&B is a robust vehicle and that it is pointing in the right direction,’ said analysts at Langton Capital in a research note.

But they added: ‘The revolving door at head office... does beg the question as to whether the vehicle is being driven as well as it might be, and corporate governance in general remains a concern.’

M&B shares gave up 14.3p, or 4.9%, to 276.7p in morning trading after the group said like-for-like sales climbed 2.8% in the nine weeks to 16 July, but had been boosted by the negative impact of last year's football World Cup on the comparative period.

The stock has shed 17% of its value in the year to date, following boardroom battles and the series of high-level management departures, with M&B losing its fifth chairman in three years last week.

In the wake of the management statement, Numis lowered its earnings forecasts for M&B by 4% and slashed its price target to 350p from 425p, but reiterated a ‘buy’ recommendation, citing the stock’s value.

Douglas Jack, analyst at the broker, said the new price target valued the business on 7.7 times its enterprise value over forward underlying earnings, versus a peer group average of 8.5 times.

‘To rectify the valuation gap, management needs to be recruited/locked in and dividends resumed,’ he said in a research note. ‘The longer it takes to sort this situation out, the greater the chance of executive/operational management leaving.’

According to data from Starmine Professional, there are currently eight ‘strong buy’ analyst recommendations for the stock, one ‘buy,’ eight ‘hold,’ two ‘sell’ and two ‘strong sell’ – with an average price target of 386.6p.

Arun George, analyst at Altium Securities, said the overall investment case was ‘clearly not helped’ by ongoing senior management uncertainty, which the broker now believes is having an impact on operational performance.

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3 comments so far. Why not have your say?

alan franklin

Jul 21, 2011 at 12:35

The middle management seems OK as Toby Carveries are fantastic value, well run and packed out. Perhaps many firms do well without too much head office interference.

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Mark C Digby

Jul 21, 2011 at 21:30

I agree with Mr Franklin. We have enjoyed super service, find the staff really pleasant, the meals excellent. Whether it is Crown or Toby Carveries, and the Harvester where we went today (Stevenage) the package leads me to buy some shares while low, the floor level management and staff are superb, perhaps the problem is at the top?

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Anonymous 1 needed this 'off the record'

Jul 25, 2011 at 10:57

Bit of nostalgia but I grew up within site (and smell some days) of Butlers Brewery in Wolverhampton. In those days they brewed decent beer, had horse drawn drays and employed coopers to make the barrels. Now it's just a pile of rubble and a brand selling fast food and tasteless pasteurised ale.

I suppose some people would call this progress.

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