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Do you need to be drunk to buy shares in Mitchells & Butlers?
Mitchells & Butlers (MAB.L) shares fell after the pubs and restaurants group said sales growth had eased in the past two months and that its outlook remained ‘uncertain’.
Coming amid management turmoil at the All Bar One owner, the disappointing interim statement could lead investors to think that they would need to be blind drunk at one of its pubs to buy shares in M&B.
Analysts, however, are divided.
‘We remain of the view that M&B is a robust vehicle and that it is pointing in the right direction,’ said analysts at Langton Capital in a research note.
But they added: ‘The revolving door at head office... does beg the question as to whether the vehicle is being driven as well as it might be, and corporate governance in general remains a concern.’
M&B shares gave up 14.3p, or 4.9%, to 276.7p in morning trading after the group said like-for-like sales climbed 2.8% in the nine weeks to 16 July, but had been boosted by the negative impact of last year's football World Cup on the comparative period.
The stock has shed 17% of its value in the year to date, following boardroom battles and the series of high-level management departures, with M&B losing its fifth chairman in three years last week.
In the wake of the management statement, Numis lowered its earnings forecasts for M&B by 4% and slashed its price target to 350p from 425p, but reiterated a ‘buy’ recommendation, citing the stock’s value.
Douglas Jack, analyst at the broker, said the new price target valued the business on 7.7 times its enterprise value over forward underlying earnings, versus a peer group average of 8.5 times.
‘To rectify the valuation gap, management needs to be recruited/locked in and dividends resumed,’ he said in a research note. ‘The longer it takes to sort this situation out, the greater the chance of executive/operational management leaving.’
According to data from Starmine Professional, there are currently eight ‘strong buy’ analyst recommendations for the stock, one ‘buy,’ eight ‘hold,’ two ‘sell’ and two ‘strong sell’ – with an average price target of 386.6p.
Arun George, analyst at Altium Securities, said the overall investment case was ‘clearly not helped’ by ongoing senior management uncertainty, which the broker now believes is having an impact on operational performance.
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