Peel Hunt has issued a Buy recommendation for Marston’s ahead of its H1 update on Wednesday, saying its shares are “exceptionally cheap”. Peel Hunt has set target price of 130p for Marston’s, which is described as one of only three “good” pub companies, along with Greene King and JD Wetherspoon. Peel Hunt expects Marstons’ like-for-like sales growth, which was +2% in the 10 weeks to 23 July, to flatten to c.+1% for the final quarter. The assessment follows shrinking sales growth at rival Mitchells & Butlers due to “increasing pressure on consumer demand” and the impact of the August riots. On a more positive note, LFL profit growth in the tenanted and leased arm should stay close to +0.5% “as performance us supported by the commercial success of the model”. Peel Hunt said: “All of this has been anticipated by the market, with the shares down 10% in the last three months, underperforming the All-Share by 2%. “We do not believe there is a risk of Marston’s materially missing our £80.5m pre-tax forecast for FY11E (consensus range £78.4m - £81.2m), consistent with 11.8% earnings growth, because of overperformance in Q3 and a buoyant H1 which we believe means that the forecast is well backed. “For FY12E, we will probably take out our 1% LFL growth assumption for managed pubs, which would take our top-of range £91m PBT forecast closer to consensus average of £87m, and earnings growth to +8%. “Growth continues to be driven by newbuild food pubs in the managed estate, and the Retail Agreement in tenancy. Such has been the success of the latter that we would not be surprised to see its scope extended beyond the initial 600 pubs to part of the remaining 1,000.” Peel Hunt said Marston’s shares are “exceptionally cheap at 7.8x FY12E ebitda and PER of 7.7x (both assuming the downgrade). “Any improvement in the trading prospect is likely to see the shares respond elastically, while the 6.6% yield gives a good return in the meantime.”