Christmas comes early for M&B.

Mitchells & Butlers, the Birmingham-based pub and restaurant chain that owns O’ Neills and All Bar One, saw its fair share of the action in its 2,100 pubs, many of which are town and city-centre based.

Led by chief executive Tim Clarke, M&B, which split out of Six Continents’ de-merger in April 2003, reports its preliminary results on 4 December.

Hilary Cook, director at Barclays Private Clients, said that it would be interesting to see M&B’s results, now it is separate from Six Continents’ hotel business (now InterContinental, owner of Crowne Plaza).

Hotels require large capital expenditure on refurbishment, whereas pubs have lesser property-related costs and are therefore more cash generative, she said. Even a small increase in sales can generate rewarding cash flow, making it possible to pay down debt quite quickly.

From the City’s perspective, this makes pub chains attractive acquisitions, particularly to private equity houses. ‘One disappointing feature is that there hasn’t been a (successful) bid for (M&B),’ said Cook.

Finance director Karim Naffah will be looking at the company’s debt position.

Following a £1.9bn bond issue, he is about to return £500m in special dividend payments to shareholders.

The company will end up with a £1.3bn debt and £1.65bn in equity. M&B’s last trading update reported year-to-date sales up 1.7%, plus a £5m overhead saving for the half-year.

The company has also revised its net capital expenditure down to £100m from £150m. Cost control is clearly a consideration for this management team.

Deutsche Bank said the early signs from the company were good and recommended holding the shares.

This will no doubt come as some relief to the company’s directors as they focus on developing shareholder value. The company can also take heart from the time of year. Not only will it probably have booked record takings on the day of the rugby world cup final, Christmas should also see M&B’s coffer filled by seasonal revellers.

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