Numis Securities has maintained a 'buy' rating for Mitchells & Butlers (M&B) and upgraded its forecasts after the pub group's £266m acquisition of the Orchid Group estate.

The broker said "the deal is a good one for M&B", buying 173 of Orchid's 220 pubs, adding food-led brands including The Great British Carvery, Thai Dragons and Oriental Restaurants and All Inns.

While it pointed out that M&B is paying a "full price" for Orchid, valued at 12.7 times operating profits, this is a price it can "comfortably afford".

"M&B has paid a full price for Orchid, but the deal works for M&B due to the 1% financing cost, potential synergies and re-branding opportunities.

"In addition to integrating Orchid, M&B must now target stronger LFL sales in its own estate and ensure a speedy resumption in the dividend."

The broker said that the estimated £6m of synergies from the deal could be a "conservative" target.

The full benefit of the transaction will be seen in 2017, it said, with synergies and the trading potential from rebranding adding at least £30m to group pre-tax profit, compared with the £184m M&B earned in the year ended September 2013.

Numis kept a 525p target price for the stock, which was trading 0.7% lower at 404.3p by 11:07 on Monday.

BC

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