Mitchells & Butlers shares 'cheap as chips', says Berenberg

Berenberg said that M&B still has its challenges. "However, trading momentum is improving materially, a free cash flow yield of around 15% is within touching distance, and we simply think that is too cheap for a company with significant freehold backing (it owns circa 80% of its real estate) and a balance sheet which has been significantly de-risked."

It pointed out that after at least five years of sub-par sales growth and flat earnings, the company's like-for-like sales momentum has shown consistent improvement in recent quarters, culminating in 4.1% LFL growth in the first half of 2019 and 5% EBITDA growth.

Berenberg said this is indicative of building momentum behind management’s wide-ranging operational improvement initiatives, and the growing benefit of restaurant supply finally normalising. "We think both of those tailwinds can continue," it said.

The bank downgraded its recommendation on rival pub group EI to 'hold' from 'buy', keeping the price target at 220p.

It argued that while management continues to do an "excellent" job of creating value for shareholders, there are few obvious catalysts over the next 12 months and the shares are close to its price target.

"While we continue to believe in the strategy, we downgrade our rating to hold," it said.

At 1320 BST, M&B shares were up 3.8% at 291.25p and EI was down 1.4% at 205.20p.