The Week Ahead: Mitchells & Butlers hope shift to food pays off

It has been nearly eight months since Mitchells & Butlers announced that it was going to reshape its business model, and tomorrow's full-year results are a chance for investors to see how the changes are coming along.

Back in March, the pub group said that it was going to move away from what it described as "the more price sensitive drinks-led businesses" and instead focus on food, as a sector that it hoped would provide a better opportunity for growth. HSBC's Ben O'Toole certainly sees it as a good move, noting that among its listed peers "it has the highest exposure to food (49 per cent of sales) and mid/premium price categories, which are substantially outperforming the wet-led and value categories respectively".

The analyst is expecting strong trading results, noting that Mitchells & Butlers has put up the prices of some of its food products by a few per cent. "Crucially, we think food volumes can be maintained going into the end of this year, and that Mitchells & Butlers can encourage consumers to continue trading up through initiatives such a menu innovation, marketing and staff training," said Mr O'Toole. He also called the eating-out market "buoyant", and said that the noises being made by other restaurant groups such as Wagamama and Yo Sushi are encouraging.

Nomura is similarly positive, with the broker keeping its "buy" recommendation on the company.

Its analysts say that now that the firm has sold close to 450 of its sites, bringing in £535m, "the focus moves to a re-investment-driven EPS growth story". It is forecasting earnings before interest and tax of £325m, with the broker saying that the retained sites have "consistently outperformed the group".

Meanwhile HSBC, which raised Mitchells & Butlers' target price to 440p from 400p, and reiterated its "overweight" advice, says that it still expects dividends to be reintroduced next year, but doesn't rule out the possibility that their return may be announced tomorrow instead.


Results/Updates: Big Yellow, MITIE.


Severn Trent releases its first-half results on Tuesday, with investors hoping for a positive update on dividends. Deutsche Bank's analysts are expecting the water company's operating profits to be down, thanks to a combination of a drop in prices and an increase in operating costs. Despite this, the broker has kept it as a "buy" recommendation, saying that it remains "favourable on the water sector" and describes the company as "one of the least expensive stocks in the sector".

Also releasing figures tomorrow is De La Rue, and JP Morgan Cazenove remain rather unsure about what to expect from its first-half results thanks, it says, to "a combination of limited disclosure to date, and significant speculation around the issues at stake". The broker feels that a key question to be answered by the banknote producer (which literally has a licence to print money) is when it will lift the suspension of part of its operations at one of its factories. De La Rue is still looking for a new CEO, after James Hussey resigned in July as a result of its production problems.

Results/Updates: De La Rue; Homeserve; Intermediate Capital Group; Mitchells & Butlers; Severn Trent.


The catering company Compass is dishing out its full-year results on Wednesday Nomura anticipates "few surprises". The broker has the group on a "buy" rating, saying that it continues "to see opportunities for efficiency, cyclical recovery and contract wins". One thing it does expect to be revealed, however, is a decent update on the company's strategy as it moves from "a period of margin recovery in 2006 and 2009, to the more balanced current position of ongoing efficiency gains, with some re-investment to better harness structural growth".

Results/Updates: Compass; Johnson Matthey; Sportingbet; and United Utilities.


Analysts from Numis are positive ahead of the release on Thursday of preliminary results from DMGT, which the broker believes is undervalued. Of its B2C titles, the broker says that it expects DMGT to "have benefited from the rebound in display advertising", and also says that "with 47 million unique users the Mail brand is well -positioned to monetise online successfully." However, Numis saves particular praise for DMGT's B2B brands, which provide over two-thirds of its operating profits, calling them the "best-in-class", and it forecasts "good growth from the property, financial, education and energy markets".

Results/Updates: Antofagasta; Atkins; Dixons Retail; DMGT; Pennon Group.


Results/Updates: None.

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