Leading analyst Jamie Rollo at Morgan Stanley has said he believes that Mitchells & Butlers (M&B) full year results will be towards the low end of expectations after a weak H2 LfL sales performance.

Rollo said that focus at the update on 25 November will be on the company’s efforts to drive better top-line growth, the integration of Orchid, and when a dividend might be resumed.

He said: “We forecast Orchid to add c.£5m to the EBITDA in 2014, ramping up to c£40m by 2017e. At the full-year results, we will look for a progress update, further guidance on the conversion pipeline into 2015/2016, and the realisation of cost savings as the transitional services agreement comes to an end.”

The company has already announced that LfL sales were +0.6% in the year and that EBIT margins were below last year.

Rollo said: “We forecast FY14 sales of £1,968m (+4%) vs. cons £1,967m, EBIT of £315m (+1.7%) vs. cons £316m and EPS of 35p (+2%, in line with consensus). Our focus at the results will be on current trading, any 2015 LfL sales guidance, the integration of Orchid, and an update on a possible dividend resumption (we assume in 2016).

“Looking into 2015, we forecast LfL sales growth of +1%, 30bps lower margins and 12% EPS growth. The shares trade on 9.1x 2015e P/E and 7.5x EV/EBITDA 2015e, which we think is good value for a high quality freehold pub estate in a consolidating industry, even if LfLs are underperforming.

The company said that Q4 faced difficult trading conditions in August, as consumers remained cautious about spending and rainfall was significantly higher than last year.

The analyst said: “In the mix, LfL food sales were +0.1% in the last 9 weeks and drink -0.2%, slowdowns from +0.8% and +0.6% in the rest of the year. This was somewhat in contrast to Spirit which reported solid trading in its Managed business at the start of the year (+2.6%) and the Coffer Peach tracker which was up 2.2% in September. However, we are somewhat cautious on a strong recovery from here given recent signs of consumer softness and more discounting in the sector.

The company said that margins remained below last year, citing three main reasons: Orchid integration (lower margins than the rest of M&B’s estate), acceleration of the remodelling program, and volume-driven sales growth.

Rollo said: “These headwinds are expected to continue into 2015, but normalisation should be seen in FY16 once the factors dissipate. We forecast FY14 margins to drop 20bps to 16.1%, implying a c.70bps decrease in H2. In 2015e, we forecast margins to drop 30bps to 15.7%.”