On Tuesday, Deutsche Bank (ETR:DBKGn) increased its price target on Mitchells & Butlers Plc (LON:MAB:LN) (OTC: MBPFF) shares to £3.60, up from the previous target of £3.20. The firm continues to endorse a Buy rating on the company's stock.
The revision follows Mitchells & Butlers' recent interim financial results, which highlighted significant improvements in the company's balance sheet.
A substantial reduction in pension deficits and a £35 million cash return from escrow, which translates to an additional 6p per share, were key factors acknowledged by the analyst.
The ability of Mitchells & Butlers to potentially convert debt into equity, amounting to roughly 8% of its market capitalization, was also noted as the company is on track to cover its annual debt amortization of approximately £140 million from its free cash flow.
Operationally, Mitchells & Butlers is performing robustly with like-for-like sales growth of 7%, surpassing the rate of cost inflation. The company anticipates a decrease in utility costs by £45 million, a slowdown in food and beverage inflation to mid-single digits, and recognizes that the national living wage will continue to pose challenges for the sector.
The improved cost outlook has prompted Deutsche Bank to increase its EBIT forecasts for Mitchells & Butlers by 5% for fiscal year 2024 and by 3% for fiscal year 2025.
The analyst underscored the attractive valuation of the company, citing a 2024 estimated price-to-earnings (P/E) ratio of 12.9 times and a 20% discount to tangible net asset value, as reasons to reiterate the Buy rating.
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