After a site visit to Hertfordshire to look at Miller & Carter, Toby Carvery and Premium Country Dining (PCD), Douglas Jack of Numis takes a positive view of Mitchells & Butlers (Add, TP: 500p) stating that, whilst competition for new sites has increased, the company is making progress operationally. This and easy comparatives bodes well in relation to H2 trading and meeting full year expectations.
In summary: “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% LFL 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.”
Specific Highlights
- Miller & Carter (M&C) is generating top quartile LFL 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% vs 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.
- IT development. The new EPOS tills and inbuilt payment systems are saving 5-10 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.