Leading analyst Douglas Jack has reiterated his Buy recommendation for Spirit Pub Company ahead of its H1 trading statement next Tuesday (18 March), saying that the forecast risk for the group remains on the upside.
Jack, of Numis, issued a Buy recommendation at a Target Price of 110p. He said: “Managed pub like-for-like sales rose 4.3% and leased like-for-like EBITDA rose 1.2% during the 20 weeks to 4 January. Ongoing operational progress and easy comps should have supported like-for-like trading in Q2. We expect to hold our forecasts, but believe forecast risk remains on the upside.”
He pointed out that managed pub like-for-like sales rose 4.3% during the first 20 weeks with food up 4.2%, drink up 3.9% and accommodation, machines and Wacky Warehouse admissions were all positive. “This largely reflects brand improvement, rising service levels, volume growth in Fayre & Square and Flaming Grill as well as ongoing strong trading for Taylor Walker in London.
“Managed EBIT margins should be up (we forecast by 40bps over the full year) due to better labour scheduling, higher like-for-like sales (with volumes, prices and average spend all growing) and just c2% net cost inflation.”
He also highlighted the fact that Leased like-for-like EBITDA rose 1.2% during the first 20 weeks having risen an estimated 2.2% over the 12 weeks to 4 January.
“Management target slight like-for-like EBITDA growth in 2014E, driven by better investment, support, product range, pricing, training, increasing central food purchasing and minimal rent rebasing.”
Jack added: “We expect to hold our forecasts, which assume 2.5% full year managed like-for-like sales (guidance is 3%) and 0.4% leased like-for-like EBITDA growth, similar to company guidance. Also, freehold pubs should start being acquired in H2 for conversion to Spirit’s brands, mostly Flaming Grill (adding to a pipeline that already includes 40 Locals pubs).
“Despite a strong track record that includes growing average managed pub EBITDA by 37% over the last three years, Spirit still has the lowest EV/EBITDAR valuation in the sub-sector. We would buy for the growth and for another potential re-rating.”