Analysts at Citi have warned that many pub companies are in a “precarious state”, as they have too much leverage and little surplus cash flow as an increasingly indebted UK heads for a “potential disorderly Brexit”.

In a note on the sector, Citi said it saw “continued tough times” for UK consumers, given the rising level of household debt and the potential for a “disorderly Brexit”.

It said that higher-end restaurants and bars would be fine, as would the lower-end establishments as people switch dining out for a cheaper takeaway, but that “many listed operators risk being squeezed in the middle ground”.

It downgraded JD Wetherspoon to ‘sell’ from ‘neutral’, while upgrading Mitchells & Butlers to ‘neutral’ from ‘sell’ but only on a valuation basis.

Pub companies and restaurant groups were all given a ‘sell’ recommendation, except Greene King and Restaurant Group, which were seen as ‘buy’ opportunities on valuation.

It said that while special event dining supported the high end of the sector and the growth in fast food and delivery supports the low end, “many listed operators risk being squeezed in the middle ground”.

The note said: “Restaurant capacity is finally contracting, with a 0.4% decline in the last 12 months “but CVA mechanisms are preventing a full scale shake out and in our view extending the pain

“We believe that many of the operators have too much leverage and importantly little surplus cash flow with which to de-lever. As a result some operators are left in precarious state. Without a sharp improvement in consumer prospects it is hard to see how investors can look forward to stronger earnings or deleveraging, leaving limited prospects for share price performance.”