Jamie Rollo at Morgan Stanley says he expects Q1 like for like sales growth of c. 5-6% for JD Wetherspoon, in-line with the first six weeks of the quarter. He assumes the company will open 40 new pubs this year, slowing to 30 pubs per year beyond 2015. He says: “We estimate that every 10 new pubs are worth 1% to EPS.”

Rollo states: “JD Wetherspoon will announce its Q1 trading update around 5 November. We expect the company to report LfL sales growth of 5-6%, broadly in-line with the first 6 weeks of the quarter (6.3%). We continue to see Wetherspoon as a well-run operator, benefitting from strong trading trends and a rollout of new pubs.

“However, trading on 13.2x calendarized 2015e P/E, the valuation is at the higher end of its range in recent years as well as at the top end of the peer group, so we rate the stock Equal-Weight.

“The first 6 weeks of Q1 saw LfL sales growth of 6.3%, with total sales increasing by 11.4%. We expect the company to report LfL sales growth of 5-6%, ahead of the +4.9% in the previous quarter, but broadly in-line with the first 6 weeks of the quarter. Wetherspoon laps its easiest comps in Q1, and we expect LfL sales growth to moderate to 3.5% for the full year.

“Comps get tougher in the remainder of the year as improvements (extended food offer, coffee, real ales and staff bonuses) have come through in the LfL sales outperformance over the previous quarters and we expect this to stabilize, forecasting +3.5% LfL sales for FY15.

“We expect a broadly flat operating margin in FY15 of 8.1%, at the higher end of JDW’s guidance of 7.7%-8.1%. EBIT margins have declined in 20 out of the last 22 years and this continued in 2014, when the margin was 8.2%, representing a 50bps decline on FY13. Looking into FY16, we assume modest margin increases, and any confidence that management can give that the margin trend has bottomed would be taken well, we think.

“Wetherspoon has opened an average of 28 pubs a year for the last 10 years. However, it tends to have quite a lumpy opening profile, with periods of accelerated openings (taking advantage of lower property prices or competitor withdrawals) being offset by periods of slower openings (usually due to duty or other government issues).

“We assume 40 new pubs this year, slowing to 30 pubs per year beyond 2015. We estimate that every 10 new pubs are worth 1% to EPS. The company said it expects to open 30-40 new pubs this year.

“We forecast £123m (+7%) EBIT and £90m PBT (+13%) for FY15, with PBT benefitting from the lower cost of debt as its swaps have matured. Our forecasts are in-line with consensus (£123m EBIT, £88m PBT), and we do not think changes are likely at this early stage of the financial year. We assume +3.5% LfL sales and an 8.1% operating margin, implying a 2% slowdown in LfL growth and c.7bps margin drop relative to F14.

“The company says it expects a reasonable outcome for the year, which suggests consensus forecasts are well underpinned, although the strong current trading and comments around increasing taxation and input costs suggests the mix may change a little.”