In This Article:
When Mitchells & Butlers plc (LON:MAB) released its most recent earnings update (14 April 2018), I wanted to understand how these figures stacked up against its past performance. The two benchmarks I used were Mitchells & Butlers’s average earnings over the past couple of years, and its industry performance. These are useful yardsticks to help me gauge whether or not MAB actually performed well. Below is a quick commentary on how I see MAB has performed.
Check out our latest analysis for Mitchells & Butlers
Was MAB’s weak performance lately a part of a long-term decline?
MAB’s trailing twelve-month earnings (from 14 April 2018) of UK£61.00m has declined by -12.54% compared to the previous year. Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of -6.94%, indicating the rate at which MAB is growing has slowed down. Why could this be happening? Well, let’s take a look at what’s occurring with margins and whether the rest of the industry is facing the same headwind.
Revenue growth over the last few years, has been positive, however earnings growth has been falling. This implies that Mitchells & Butlers has been increasing expenses, which is harming margins and earnings, and is not a sustainable practice. Eyeballing growth from a sector-level, the UK hospitality industry has been growing its average earnings by double-digit 15.10% in the past year, and 12.20% over the past five. This growth is a median of profitable companies of 24 Hospitality companies in GB including DP Eurasia, 888 Holdings and Marston’s. This suggests that any uplift the industry is enjoying, Mitchells & Butlers has not been able to leverage it as much as its average peer.
In terms of returns from investment, Mitchells & Butlers has fallen short of achieving a 20% return on equity (ROE), recording 3.58% instead. Furthermore, its return on assets (ROA) of 3.69% is below the GB Hospitality industry of 6.21%, indicating Mitchells & Butlers’s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Mitchells & Butlers’s debt level, has declined over the past 3 years from 4.19% to 3.31%.
What does this mean?
Though Mitchells & Butlers’s past data is helpful, it is only one aspect of my investment thesis. In some cases, companies that experience a prolonged period of reduction in earnings are undergoing some sort of reinvestment phase with the aim of keeping up with the recent industry expansion and disruption. I suggest you continue to research Mitchells & Butlers to get a more holistic view of the stock by looking at: