Leading analyst Jamie Rollo says he believes Mitchells & Butlers (M&B) will not resume dividend payments until 2015 and that he “struggles to see” the investment case in the company.

However, Rollo increased his price target from 380p to 420p “as we roll forward and update for peer multiples”.

Rollo, of Morgan Stanley, said:  “We see M&B’s like-for-like sales momentum staying low, margin expansion slowing, and free cash flow still weak given the step-up in capex and pension payments.

“We now think a dividend resumption is unlikely until 2015. The shares are cheap, but this is not enough of an investment case to buy them, we think.”

Rollo added: “We struggle to see what the investment case is. With like-for-like sales underperforming the peers for the last three years despite a high-quality pub estate, operating margins having already held up pretty well, an expansion profile that is quite slow, and FCF still paltry, M&B seems neither a growth, a cyclical nor an income stock.”

Rollo said he forecast free cash flow of £0-10m in 2014 and 2015, “as the step-up in capex, the pension costs and ongoing securitisation amortization consume most of the FCF”. “We now assume an 8p [dividend] resumption in 2015, but even this might be generous, given FCF is still depressed.”

Rollo added: “We think a positive surprise could come in the form of an acquisition.

“M&B has £250m+ of net PLC cash, and we think it could take on more debt, giving it plenty of firepower. We estimate this could be c10% EPS enhancing, and reflect this in our 550p bull case. However, there are few high-quality and large estates currently available, so this cash could remain unused.”