Mitchells & Butlers slumps on Canaccord downgrade

Pub group Mitchells & Butlers was under pressure after Canaccord Genuity downgraded the stock to ‘hold’ from ‘buy’ and cut the price target to 285p from 350p.

The brokerage said M&B’s reasonable return on invested capital and balance sheet strength rankings are not enough to offset poor free cash flow conversion and earnings growth scores, which result in a bottom quartile ranking on its investment screen.

“Nascent recovery could get blown away by rising headwinds; it is the most food-led of the pubcos which leaves its profit before tax and ambitious capex plans vulnerable to rising costs and competition.

“Accordingly, we move our recommendation to hold.”

Canaccord pointed out that M&B is in the first year of a plan to reduce the investment cycle to 6-7 years/pub from the current 10-12 years. It will spend £200m a year refurbishing 300 sites a year.

“The catch-up is essential to becoming competitive again. The capex should also rebalance the estate towards more premium segments with Miller & Carter (premium steak house) and Stonehouse (pizza/carvery) receiving the most capex.”

At 1000 GMT, M&B shares were down 4.1% to 245.70p.