The FTSE 250‘s back in business and booming again after a rocky November. Things are especially hot over at Mitchells and Butlers (LSE:MAB) — its share price rocketed 12.1% on Friday (28 November).
The pub and restaurant operator hasn’t boomed by a broader improvement in market confidence though. Instead, a release of blowout full-year trading numbers have driven the All Bar One and Toby Carvery owner through the roof.
Yet despite these stunning gains, Mitchells and Butlers’ shares still look dirt cheap on paper. Can the publican keep rising after hitting last week’s multi-month highs?
Market-beater
Times are tough for the UK leisure industry as the cost-of-living crisis drags on. This remains a significant danger as the domestic economy splutters, unemployment ticks higher, and the Budget leaves people with higher tax bills.
However, Mitchells and Butlers has found a way to thrive in this tough climate, as Friday’s update showed. Like-for-like revenues rose 4.3% in the 12 months to 27 September, comfortably outpacing the wider market. In fact, it beat its competitors by a good 3% or so. On a reported basis, turnover was up 3.9% at £2.7 billion.
Thanks to its strong sales and effective cost cutting, Mitchells’ operating profit came in at a forecast-topping £330m (up 5.8% year on year).
Still impressing
The million dollar question though, is can Mitchells keep up the pace? Recent trading data is certainly encouraging, as while broader retail sales are declining, revenues for the FTSE 250 company are instead accelerating.
Like-for-like sales increased 3.8% during the first eight weeks of the new financial year. This was up from 3.2% during the final quarter of fiscal 2025.
Effective price hikes on its food and drinks, combined with widescale refurbishments across its estate have so far delivered impressive results.
A FTSE 250 bargain?
So are Mitchells and Butlers’ shares a buy then? While still performing strongly, there are some substantial dangers investors need to think about.
The first thing to consider of course is whether, at some stage, even a market-beater like this will run out of road. The economic outlook is weak for the short-to-medium term, which may make it increasingly difficult for the publican to grow sales.
There’s also the problem of rising costs. Mitchells experienced cost headwinds of £100m last year. It’s guided for a still-higher £130m this financial year, driven by rising labour and food costs.
Yet the company’s continued resilience deserves serious consideration, in my book. It’s Ignite restructuring programme to cut costs and boost sales continues to deliver — adjusted operating margins rose 0.2% last year, to 12.2%. And there’s further gains to come.
At 287p per share, the company’s forward price-to-earnings (P/E) ratio is a modest 9.1 times. At these levels, I think bargain-loving investors should consider taking a shot. It’s a valuation I think could lead to further share price gains.
