Mitchells & Butlers plc (LON:MAB) (LSE:MAB.L) has released a pre-close trading update for the 8 weeks to 17 September. LFL sales increased by 1.7%. This represents a continuation of the improved trend over time as well as favourable weather conditions. Mitchells & Butlers has recorded strong sales growth from its invested sites. This is now started to be complemented by improved growth from sites which have not been the subject of recent investment.
LFL sales growth included an increase in food sales of 0.4% and an increase in drink sales of 3.7% for the 8 week period. Over the 51 weeks to 17 September, Mitchells & Butlers saw LFL sales fall by 0.8%. This was mostly due to a fall in LFL sales of 1.4% in food, while drink LFL sales declined by 0.1%.
Margins for the full year will be below those from last year. This is due to wage inflation after the introduction of the National Living Wage. It is also because of an acceleration of investment in the company’s estate. Thus far this year Mitchells & Butlers has remodelled 244 sites and opened 7 new sites.
In 2016 Mitchells & Butlers has fallen in value by 21%. This is behind consumer peers Unilever plc (LON:ULVR) (author owns shares), Tesco PLC (LON:TSCO), Greggs plc (LON:GRG) and Diageo plc (LON:DGE). Unilever has risen by 21%, Tesco is up 19%, Diageo has moved 17% higher, while Greggs is down 19% since the start of the year.
In my view Mitchells & Butlers has a good strategy and has long term potential as a business. However, it faces an uncertain future thanks to Brexit. Its P/E of 7.5 takes this into account and its earnings are forecast to increase this year. Therefore, I feel it has investment appeal.