Liberum slashes TP on Mitchells & Butlers but reiterates 'buy' rating

Analysts at Liberum slashed their target price on pub operator Mitchells and Butlers from 600.0p to 300.0p on Wednesday in anticipation of three months of full lockdown followed by a further three months of subdued trading.

Liberum said M&B should have "sufficient" cash resources to fund obligations well into the second half of the year, subject to covenant waivers and noted that lender negotiations were on-going but so far had been supportive.

The investment bank also pointed out that trading had been "solid" prior to the coronavirus-driven closures, with an improvement in asset quality and service driving like-for-like sales growth outperformance, margin improvement and debt reduction.

However, Liberum updated its forecasts based on three months of Downing Street's lockdown and a further three months of "subdued trading", leading it to cut its 2020 and 2021 underlying earnings estimates by 47.9% and 23.9%, respectively.

"Shares have fallen 63% since 21 February. Prior to Covid-19, M&B had continually outperformed its peers, whilst improving its estate quality and net debt reduction," said Liberum, which reiterated its 'buy' rating on the group.

"This should ensure the company bounces back quickly post Covid-19."