Mitchells & Butlers shares slide on weaker London sales, costs

(Sharecast News) - Shares in Mitchells & Butlers fell more than 7% on Thursday as news that weaker sales in London and at its premium businesses disappointed investors despite the pub and restaurant group holding annual guidance on the back of a 4.2% rise in like-for-like sales. The Harvester and Toby Carvery owner forecast higher overall cost inflation next fiscal year of around £130m, or 6% of its cost base, but expected to outperform the sector via cost efficiencies.

Chief executive Phil Urban said sales growth in the 51 weeks to September 20 had been broad based, with "strong" like-for-like performances in both food and drink across its portfolio supported by cost management and capital investment.

AJ Bell investment director Russ Mould said: "Fundamentally, Mitchells & Butlers needs to either put up its prices or greatly increase sales volumes so it can achieve economies of scale such as bigger buying power for raw ingredients."

Derren Nathan, head of equity research at Hargreaves Lansdown said the group's diverse brand portfolio, well-invested estate, and focus on efficiency, left it well placed to mitigate cost pressure, while outgrowing the market.

However, he noted that shares in the company have more than doubled over the last three years and the "valuation broadly reflects recent operational improvements".

"With consumer sentiment fragile, and the potential for a further tax grab in the November budget, there's no obvious catalyst for near-term appreciation," he said.

Reporting by Frank Prenesti for Sharecast.com