Mitchells & Butlers said in a trading update that first-half like-for-like sales were up 0.6% - slowing only slightly from the 0.8% growth reported at the 18 week period.
Food sales, up 4.8%, helped offset a 1.4% decline in drinks sales. Food now accounts for 38% of M&B's revenue compared to beer at just 25%.
"We remain confident in the growth prospects of our value for money food offers, continuing strong drinks market share gains and further productivity improvements," the company said. But it also cautioned: "The outlook for consumer confidence remains weak while the on-trade beer market is likely to remain depressed with a continuing shift to the off-trade."
"The update should reassure investors concerned about things other than strategy," said Geoff Collyer, an analyst at Deutsche Bank. "M&B continues to outperform many of its peers and we see the performance as robust."
M&B put itself up for sale in January after losing around £400m on a failed property spin-off with shareholder Robert Tchenguiz. Management said today that it would announce the outcome of the strategic review on May 20.
The deadline comes after Punch, the former frontrunner, last month pulled its provisional offer to merge the two firms. Meanwhile, the gridlock in corporate debt markets will probably rule out private equity firms or unlisted rivals, meaning M&B is likely to remain independent, analysts believe.
Dresdner Kleinwort took the stock off its "sell" list after the trading update. Its team argued that, now some of the bid speculation has been washed out of the share price, M&B has a less stretched valuation and probably the most achievable consensus forecasts in the sector.
"Our sell recommendation was in part due to a belief that a clutch of bidders for M&B was unlikely to emerge and with Punch having walked away, the bid speculation in the price has rightly reduced," Dresdner told clients. "Today's statement reads well and M&B forecasts are probably the most conservative in the pub sector. As such with a valuation more in line with peers" - at an enterprise value of 11.5 times 2009 earnings, versus a sector average of 11 times - we upgrade to hold from sell but retain a preference for the tenanted plays, Enterprise Inns and Marstons."
Because M&B is officially in an offer period, it could give no comment regarding the board's opinion on market estimates. Some also saw the sales data skewed by the early Easter holiday, and preferred to hold until M&B's interim results to gain a true picture of performance.
Shares in M&B rose 6.25p to 334.5p, valuing the company at £1.35bn. They have been under pressure recently after Lehman Brothers argued that, if trading deteriorated, the terms of lending agreements could be stretched.
On that theme, M&B said today it had completed £50m of pub disposals at 18 times underlying earnings. This reduces the group's net debt to close to £2.8bn.
According to Dresdner, the cash inflow leaves M&B's heading for 2009 net debt of 5.4 times EBITDA.
"What matters is the strategic review," argued Deutsche Bank, which repeated "hold" advice. "That will deter- mine the direction of the group's share price. In the meantime, we see little reason to chase M&B above a rating that compares with JD Wetherspoon. This implies a price ceiling for us of about 300p until the future unfolds on May 20."
