HSBC downgrades Greene King, Mitchells & Butlers

(ShareCast News) - HSBC cut its stance on Greene King and Mitchells & Butlers as it took a look at the UK pubs sector.The bank downgraded Greene King to 'reduce' from 'hold' and cut its price target to 780p from 830p saying it was concerned about like-for-like sales growth."We assume 2%, which is already high versus the peer group - and are concerned that minimum wage pressures could emerge," it said.The bank said it doesn't see huge downside, but noted that the price-to-earnings multiple is high compared with history, even once synergies from the acquisition of Spirit are factored in."As such, we believe the shares could come under pressure. The most obvious attraction is the dividend yield, but that's not especially well covered by free cash flows."HSBC cut Mitchells & Butlers to 'hold' from 'buy' and slashed the price target to 385p from 495p.It said that while the shares may look inexpensive on headline multiples, it is hard for the bank to see what the potential catalysts for a re-rating will be."The payment of a dividend - the most likely catalyst in our view - remains distant."HSBC said it had been hopeful of a turnaround at M&B and earlier in the year, LFL sales trends were improving. However, as the year has worn on, this has fizzled out.It said volumes as well as pricing are in decline, which leaves it wondering whether the group will be able to achieve price rises, as it hopes, next year.At 1235 BST, Greene King shares were down 3.3% at 779p and M&B shares were 0.3% higher at 328.20p.