Markets pause for thought while investors shrug off Mitchells & Butlers' concerns

“The UK stock market has taken a moment of reflection after all the whirlwind of the past few weeks where equities bounced back hard on vaccine hopes, a strong oil price and some relief with how the US Presidential transition might play out,” says Russ Mould, Investment Director at AJ Bell.

“The FTSE 100 was unmoved at 6,390 on Thursday with gains in consumer non-cyclicals, healthcare and technology being offset by weakness in utilities, energy and real estate. There were some big names trading without the rights to their next dividend, including Imperial Brands and National Grid.

“Germany’s Dax index nudged up 0.1% with real estate and tech stocks leading the way. The biggest riser was SAP, up 1.6%.

“The pound slipped 0.1% against the US dollar to $1.3372 while Brent Crude oil fell 1.1% to $48.32 per barrel.”

Mitchells & Butlers

“The pub company is walking on a tightrope and management are determined they will make it to the other side without plunging to the depths. The negative issues facing the company are akin to a tornado which is right in front of the business, waiting to strike.

“The warnings about its ability to remain a going concern are extremely worrying and management will be hoping that the Government doesn’t plunge large swathes of the country into higher category tiers when it updates later today on the country’s restrictions.

Mitchells & Butlers says there is a very high degree of uncertainty resulting from the Covid-19 pandemic and resulting restrictions placed on trading in the hospitality sector, which may cast significant doubt over the group’s ability to trade as a going concern.

“Liquidity is very tight. As at 25 November it had £125 million cash and access to committed undrawn unsecured facilities of £100 million, giving a total liquidity of £225 million. The ongoing monthly cash burn is £35 million to £40 million before payment of debt service costs of £50 million per quarter.

“However, management remains optimistic that the business can get through the crisis and that there are sufficient resources to keep operating for at least the next 12 months. The market is placing a lot of faith in the team being true to their word given how the share price has risen on this announcement.

“A lot of Mitchells & Butlers’ pubs are reliant on being rammed full of people such as All Bar One and O’Neill’s which are tailored to the party crowd, so not exactly social-distancing friendly. The idea of the country operating in tiers until at least Easter therefore poses a major threat to pub and bar trading for many months to come.

“Mitchells & Butler’s saving grace could be the widespread availability of food in its establishments. That could be the pulling power it needs to get people through the doors, assuming that people are happy to venture outdoors.”

These articles are for information purposes only and are not a personal recommendation or advice.

The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.