JD Wetherspoon (JDW), and other low-ticket operators, are more likely to be hit post-Covid working patterns, as well as any further downturn in the economy, according to analysts Peel Hunt.

In a video note, analyst Douglas Jack said they believed less people would be willing to undertake a daily commute if it means sitting behind a computer all day, which they can do from home. Instead it is more likely they will only commute into places like central London a couple of days a week and pack their meetings into those days. “It may lead to more client meetings, some of which may be in pubs and restaurants… but will these take place in a Wetherspoons or a Greggs – probably not,” he said.

Jack also noted that JDW was exposed to lower savings among young and financially challenged groups, with unemployment having also risen in sectors of the economy paying the National Living Wage, such as hospitality.

However, he said there was “a huge opportunity” for JDW to increase prices, particularly in an environment of “strained supply, pent up demand and a booming staycations market”. It said that since 2012, JDW’s beer price discount has increased from 15% to 28%. “Surely there is scope to raise prices from this level?” questioned Jack.

“With a PBT margin of just 5.6% even a tiny increase in prices can have a big impact on PBT, provided the volumes are unaffected. The question is, will the company do this? Historically they have indicated that volumes suffer when prices rise, but where else offers the same level of value as Wetherspoons?,” said Jack.

He added that while some operators may benefit from less competition, JDW has, for a long time, been out on its own on pricing. “There may be more custom due to other pubs closing but with JDW customers, value and priced based decisions are unlikely to have been altered. For JDW there may be more margin benefits as more customers adopt and accept order and pay apps for example, but even here JDW was much further down the road before Covid-19 than many other operators,” said Jack.

He explained that in Peel Hunt’s view, the investment case was very much three pronged. Firstly, it’s clever use of capital, secondly, its ability to grow like for like sales, profits and EBITDA and thirdly it’s potential to grow shareholder value through increasing prices. Offsetting this are the company’s high forward valuation, recent equity dilution and the risk that the post-pandemic normal will not be as favourable to the company.

He said that after factoring in recent equity dilution, it had increased its target price from 1,110p to 1,150p, anticipating “a beneficial 3% price increase, with no detrimental impact on volumes”. “In our view, this is generous as there is a risk that the post-pandemic new normal will not be as favourable to JDW as to other pub companies. We are cutting our recommendation from Hold to Reduce,” it said.