M&B: City analyst issues warning

A City analyst, Paul Hickman, of KBC Peel Hunt, has sounded a warning about the

economic climate and how it will impact on Mitchells

& Butlers.

Hickman, setting a price target of £2.20 and publishing his note in the wake of a M&B statement on a very negative Lehman Brothers note, said: "M&B's trading statement goes to the heart of the pubco valuations issue.

"There is a complete disconnect between trading conditions now and the market's anticipation of consumer behaviour going forward. Although we expect a reassuring account in May, we believe a target of 220p is not unreasonable.

"M&B has predicted that its May announcement will demonstrate trading that is 'resilient' and performance that is 'robust'. That does not mean that it is positive.

"Like-for-like sales of +0.7% for the first 17 weeks of the financial year are likely to be lower this time, and we expect them to be slightly negative for the current period. We note that there are 'strong drinks market share gains', words we interpret as meaning that drink like-for-likes are negative, though not as bad as others pub companies."

Hickman said "buoyant" food sales are a result of M&B's exceptionally good preparation for the smoking ban. But he added: "The debate is not really about recent trading at all, but the outlook for consumer expenditure in the near future. Uswitch recently estimated that inflation in household budgets had increased by 9%. It may take time for this to feed through to consumer behaviour, but the implication is one way."