ShoreCap upgrades Mitchells & Butlers to 'buy'

It said the share price has mirrored the wide-ranging moves in energy prices over the last couple of years.

"We believe that this masks the underlying robustness in trading, a resilient UK consumer, rebuilding margins and material deleveraging. With profitability set to rebound strongly this year, and forecasts appearing conservatively set, we believe current valuation metrics are too low (7x EBITDA).

"Over the medium term, we see double-digit EPS CAGR, leverage down to 2x EBITDA and a significant rebuild in NAV towards 500p per share."

The broker said improving cash flow was a precursor to restarting shareholder returns.

"With annual free cash flow of circa £100m in the current year, M&B is getting closer to being able to meet mandatory bond repayments out of internal cash generation," it said.

"Reaching this milestone brings into play the potential for reinstating the dividend and further M&A opportunities."

In the longer term, ShoreCap continues to view the refinancing of the securitisation debt as a potential game changer to the investment case.