Berenberg boosted Mitchells & Butlers PLC (LON:MAB) shares on Friday, returning their rating for the pubs group to ‘buy’ from ‘hold’, with an unchanged target price of 480p, having downgraded in November last year on valuation grounds.
The German bank's analysts said the re-upgrade follows around a15% pull-back in the shares, which on Friday were trading at 413p each, up 2.2% on Thursday’s close.
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In a note to clients, the Berenberg analysts said: “We think that on a five-year view M&B will see its free cash flow to equity more than double.While we forecast only very modest earnings growth, falling interest costs and the pension contributions nearing their end mean visibility on free cash flow progression is high.”
The analysts concluded: “We think it is too cheap, trading at 10x 2020 P/E with a 5.5% FCF yield.”
The change was made in a sector review in which the Berenberg analysts noted that the UK pub and restaurant sector had something of a renaissance in 2019, with its coverage stocks up by an average of 45%, versus the FTSE 250 index’s 28% gains.
They said: “While pressures undoubtedly remain, we are mostly constructive given the attractive valuations on offer at even the historically ‘lower-quality’ names.“