Mitchells and Butlers’ balance sheet should be boosted by the company pension scheme’s next triennial review, which will mean no more cash injections, according to broker Shore Capital.
The pub group will end its annual cash top-ups of £44mln in September and will benefit from “marginal” leftovers in the fund, Shore Capital believes.
Group debt decreased by £72mln last year, but net debt is still due to increase as a consequence of reduced profits and capex rising, the analysts added.
Some £200mln is required to be paid to bondholders annually, with 2019 being the last time the company could afford to pay both debt liabilities and pension top-ups.
“A conclusion of pension payments would be expected to lead to a step-up in free cash flow, yet this remains below the company’s scheduled bond repayments.”
Bond repayments are predicted at £390mln in the next three years, whilst free cash flow is only forecasted at £160mln. Shore Capital estimates, though it adds its cashflow projections might be conservative.
The Harvester owner is likely to benefit from energy prices slowing as the investment group forecast energy expenditure growth to remain at the lower end of the 10-12% guidance.
The reduction in energy costs is also expected to increase the disposable incomes for households and therefore improve consumer outlook.
However, the analysts believe better value can be found elsewhere and therefore retain a “hold” rating.
Mitchells and Butlers shares are trading at 165p, up 15% in 2023.