JPM upgrades M&B in 'precarious times' for UK pubs

JP Morgan raised its rating on Mitchells & Butlers to 'overweight' as it cut 2020 earnings estimates for UK pub companies by an average of two-thirds to reflect the Covid-19 shutdown.

Analysts at the investment bank upgraded M&B from 'neutral' because of its liquidity, sustainable debt and deeply discounted valuation. Those factors leave the shares with about 100% of potential upside, JP Morgan said, raising its price target to 340p from 490p..

In "precarious times" for the sector JP Morgan analysts, led by Ted Nyhan, said pub groups had not given much guidance and that estimates could change frequently with news flow. UK pubs can survive a mid-length shutdown, probably till July, but trading will be weak after restrictions are lifted, Nyhan said.

Marston's is in a more difficult position than M&B because it was highly leveraged coming into the crisis and has less liquidity, JP Morgan said, sticking with its 'neutral' rating and cutting its price target to 57p from 128p.

JP Morgan held its 'neutral' rating on Young & Co's and reduced its price target to 1,230p from 1,550p. It said Young's had the strongest balance sheet in the sector but its share price already reflects that solidity. JD Wetherspoon, which has raised £141m of equity, remained at 'underweight' and JP Morgan cut its price target to 600p from 1,100p.

The picture is complicated by securitisations of pub portfolios, JP Morgan said. There are questions about how investors will respond to covenant waiver requests and how companies will deal with cash needs at the parent level.