Morgan Stanley downgrades Mitchells & Butlers to 'equalweight'

The bank said M&B is a high-quality operator but noted its high UK consumer and energy cost exposure.

Morgan Stanley said M&B appears to be exiting the pandemic in a stronger position, with net debt 20% lower than in FY19, with a track record of like-for-like sales outperformance, good cost control, and an estate skewed to the more resilient residential and suburban segments.

"However, it was not hedged on energy until recently…and we think pubs/restaurants will be less immune than in 2008 as consumers are squeezed more," it said.

MS said it struggles to see the shares meaningfully outperforming until the energy and UK consumer outlook are clearer, which it thinks will take at least a year.

"Our bear case, based on a major recession, would see earnings per share go negative and free cash flow slightly negative, albeit it not enough to need another equity raise given the revolving credit facility," it added.

At 1615 BST, the shares were down 5.7% at 55.44p.