JP Morgan has upgraded its ratings for two mid-cap pub firms as it believes the sector may be a relatively ‘safe haven’ among UK domestic plays in an adverse Brexit scenario.
The US bank upped its recommendation for Mitchells & Butlers PLC (LON:MAB) to ‘overweight’ from ‘neutral’ and raised its stance on Greene King PLC (LON:GNK) to ‘neutral’ from ‘underweight’ among a number of changes to target prices.
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JPMorgan upped its target price for M&B to 390p from 280p, with the stock currently trading at 289.60p, up 0.9%, while its target for Greene King was hiked to 720p from 520p, with the shares trading at 662p, up 0.30p.
The bank also raised its target price for JD Wetherspoon PLC (LON:JDW), but cut its target for Young & Co.’s Brewery PLC (LON:YNGA).
In a note to clients, the JPMorgan analysts said the British pub remains “an enduring brand in the minds of consumers, and fundamentally pubs are fairly defensive in uncertain times.”
They pointed out that pressures faced by pubs, particularly from labour costs, will see managed house margins weaken again next year, even after mitigating action.
READ: Cheers! Sales soar at Greene King over Christmas and New Year
The analysts noted that while overall comparable sales are difficult for the UK pub sector, Christmas trading was "surprisingly" strong.
Overall JPMorgan has a ‘neutral’ stance on the UK pub sector, with a positive bias.