Berenberg ups target price on 'unique' City Pub Group

Analysts at Berenberg reiterated their 'buy' rating and upped their target price on City Pub Group on Thursday morning following the landlord's "solid set" of interim results.

Berenberg raised its target price on City Pub to 260p from its previous 210p marker, noting that it believed the best was yet to come for the predominately wet-led pubco.

"We continue to believe that on a multi-year view the company can deliver strong like-for-like growth, scale the business to at least 65 sites, and reap the rewards of operational gearing as that strategy progresses," the analysts said.

With the company's gross margin expanding by "an impressive 70bp" in the first half, the broker felt it likely that City Pub would continue to take advantage of its growing scale and buying power. Management anticipates that it will be operating more than 50 pubs by the midway point of next year.

Berenberg acknowledged that City Pub's EBITDA margin improvement was "more muted" at 10bp, due to the incremental public company listing costs. However, as those costs annualise from 2019 onwards, Berenberg feels that City Pub should achieve "more material further margin expansion" as it benefits from both additional gross margin improvement and operational gearing on its central costs.

In Berenberg's view, City Pub is "a unique asset" among the listed pub operators that will continue to become "materially bigger" year-on-year.