Leading analyst Geof Collyer has reiterated his Hold recommendation for JD Wetherspoon ahead of its H1 results next Friday, saying that it’s share price “seems high enough for now”, and suggested that the market is “getting maybe a little ahead of itself” in terms of expected upgrades.
Collyer, of Deutsche Bank, who reiterated his 695p Target Price for the company, said: “JDW expects H1’14 EBITA margins to be c.8.1%, 20 bps below H1’13. This should reduce the forecast +10% top line growth (driven by +5.2% lfls) to c.+7% at the EBITA level, and to +5% at the EPS level, also impacted by 7% higher net finance charge.
“This means that our PBT forecasts are the same as at this stage last year, yet the shares have risen by 62% - yet more evidence of the market getting maybe a little ahead of itself in terms of expected upgrades for a UK domestic consumer stock, in our view.
“We see a slower lfls performance in H2 and do not expect guidance on margins to be raised for the full year. PBT and EPS growth will be significantly helped over the next three years by lower net finance costs due to new swap contracts, but EBITA growth looks set to remain no better than mid-single digit, dependent more on the roll out than the UK economic recovery.
“On nearly 16x FY’15E P/E, JDW is now trading on a 15% premium to its managed pub retail peers as well as a 22% premium to its own 10-year average EV/EBITA multiple (our preferred valuation metric). The share price seems high enough for now.”
Collyer said his margin forecast of -20 bps in H1 EBITA has a number of negative impacts: (i) lower gross margins; (ii) more investment in front line and training staff costs; (iii) continued IT investment for the new EPOS system; (iv) higher lease rental costs; and (v) higher repairs and maintenance spend.