M&B investors should tell Lewis to get serious

THE row between Mitchells and Butlers’ largest shareholder Joe Lewis and the pub group’s management shows no sign of abating, making the firm’s stock hard to value. If Lewis wants to make a bid for the company, he’d probably have to offer around 340p, making the shares – which closed at 275.5p yesterday – look great value. Analysts agree the stock is worth more, with a median target of around 292p.

Trading also seems to be strong, if the update that was rushed out last week is anything to go by. Like-for-like sales in the six week period to 2 January were up 3.4 per cent on the same period in 2008 and revenues on the ten days of Christmas were up 4.9 per cent.

Still, a takeover attempt is no foregone conclusion, especially with M&B’s high gearing. It has over six times net debt to ebitda, making it tricky to saddle it with any buyout debt. Apart from Enterprise Inns and Punch Taverns, which are geared to the hilt, it has the most stretched balance sheet of any of the major pubcos.

Hugh-Guy Lorriman of Seymour Pierce, one of the most bearish analysts on M&B with a 210p price target, has crunched some interesting numbers showing how much debt per pub M&B is carrying. In 2008, the average M&B pub had net debt of £1.452m and ebitda of £255,000, compared to Fuller Smith and Turner and Young’s, which have an average of £120,000 of ebitda and £250,000 of net debt per pub.

Lewis will continue trying to get his own men on the board, but shareholders should make it clear that they back the board for the time being. Lewis should put up or shut up.