Mitchells & Butlers PLC (LSE:MAB) has the muscle to face post-budget challenges head-on, going by broker Panmure Liberum’s analysis of the pub chain’s final results.
M&B joined a string of hospitality firms in warning over surging costs resulting from Labour chancellor Rachel Reeves’ debut budget.
“Against a benign backdrop of general inflation, by far the most significant increase is now expected to be in relation to labour costs,” the pub chain said, adding this would increase its current cost base by 5%.
But Panmure analysts highlighted M&B’s accelerating like-for-like sales growth, widening operating margins and a lower debt profile as a foil to these headwinds.
“We believe the strong momentum gives scope for these additional labour costs to be absorbed in current forecasts and therefore should not see material downgrades today which the market seems to have been anticipating and so should come as a relief to investors,” they said.
M&B’s shares are down around 20% in the past three months due to Budget anxieties, giving the shares an “attractive” valuation of six times enterprise value to EBITDA (EV/EBITDA).
“This undervalues the high-quality, well-invested, well-balanced, managed freehold estate and strengthening balance sheet,” said Panmure.
Analysts gave the stock a ‘buy’ rating with a 310p price target.
Shares added 0.4% to 246p on Wednesday.