Shore Capital has maintained a 'buy' rating on Mitchells & Butlers Plc after the pub and restaurant group delivered an "excellent" set of annual results ahead of expectations, citing the stock's undemanding valuation.
Shares surged after the company reported a jump in full-year operating profits to £322m over the 12 months to 27 September, up from £300m the year before. This was £18m ahead of consensus forecasts and £5m ahead of Shore Capital's estimate.
"Encouragingly, H2 was flat having faced into the brunt of last year's budget increases," the broker said.
Group like-for-like sales were up 4.3% for the year, while Shore Capital noted that the current financial year had "started well" with LFL sales growth of 3.8% over the first eight weeks.
Meanwhile, the broker hailed the company's strong debt reduction - net debt dropped by around £150m over the year to £843m - along with a 10% increase in net asset value per share to 476p, leaving the stock at a 50% discount to book value.
"MABs trades on 8 PER, 6x EBITDA (ex leases) and high single digit free cash flow yield. We continue to see these metrics as too low given the ongoing robust performance and rapidly deleveraging balance sheet. BUY," Shore Capital said.
The stock was up 11.5% at 285.5p by 1101 GMT.