New pub group boss set for tough start

By Graeme Dickson
Updated: 12:18 EDT, 16 February 2011

From a technical point of view, the odds do not look great for pub group Mitchells & Butler (MAB).

Yesterday the stock performed a dead-cross, in this instance where the 20 day exponential moving average dipped beneath the 50 day exponential moving average.

Also, the shares closed below the 200 week exponential average, which should have arguably seen support around the 334-335p level:

The company, which owns chains including All Bar One, Toby Carvery, Browns and O'Neills, lost 14p a share in earnings last year, but is expected to earn about 28.7p a share in earnings this year, placing the company on a 2011 price to earnings multiple of 11.5.

The company's net gearing at 263 per cent is very high: almost on a par with its competitors such as Enterprise Inns (ETI) and Punch Taverns (PUB).

MAB had a strong Christmas performance, particularly in food sales, up six per cent in the 17 weeks leading up to 22 January with the company looking to build 50 new sites right across its brand portfolio during 2011.

However, the company is cautious on customers' discretionary income and input cost increases in the year ahead: given the UK's four per cent inflation news a few days ago, this will not be pleasing for the management.

On top of this, the pub company unveiled its new chairman as Simon Burke, the ex-boss of Hamleys, who replaced the incumbent John Lovering last week.

Simon Burke, a non-executive director of MAB prior to his appointment was in charge of finding a replacement and in turn he appointed himself.

Question marks will likely be placed about the independence of his appointment, which may not go down too well with PIRC that advocates transparent markets, accountable corporations and responsible investments as its modus operandi.

I'm sure Standard Life, Axa and Legal & General are not too pleased either with their combined 12 per cent holding.

Expect the stock to re-test 290p albeit a close above 360p would make it a less convincing idea.

Update

Go-Ahead Group (GOG) – suggested to sell at 1269p, the shares closed yesterday at 1312p. Not the best of starts: a close above 1365p would invalidate the bearish stance. Watch out for interim results rescheduled for Friday 25 February.

Rank (RNK) – suggested as a sell at 126.5p – the stock closed at 127.3p yesterday keep the stop based on a close above 140p – the company will announce its preliminary report also on 25 February and it should be at the top-end of expectations. Much of this is in the price: what concerns me is how the company will forecast for its new financial year.

Debenhams (DEB) – suggested as a sell at 67.15p, the stock closed yesterday at 63.8p. Lower the stop to 68p as the stock is struggling to break through the 20 day exponential moving average.

McBride (MCB) – suggested to sell at 160.6p, the shares closed yesterday at 144.7p. Take profits.

Intertek (ITRK) – suggested to sell at 1799p, the shares closed at 1815p. The downtrend is just about intact so hold for now but keep the stop at 1900p.

Randgold Resources (RRS) – suggested to sell at 5770p, the shares have drifted to 4830p: lower the stop to 5211p – the Ivory Coast situation coupled with the uneasy tensions in Egypt are not ideal for the Pan-African gold miner.

The writer does not hold any shares or derivatives in the above mentioned companies. The material for this report comes from Sharescope and The Guardian.