Analysts have given their view on JD Wetherspoon’s prospects following yesterday’s update in which chairman Tim Martin said he expected profits to be at the “lower end” of expectations.
Following the announcement JDW’s share price fell by 10% yesterday to 609.00.
Morgan Stanley’s Vaughan Lewis said: “For the first time in its history, Wetherspoon’s estate will shrink this year. The company has c.50 pubs for sale, with it blaming cannibalisation and outgrowing some older small pubs. We use our proprietary model to highlight that c.100 pubs have another JD Wetherspoon pub within 500 metres. While our base case assumes 35 pubs are sold this year, we think our bear case for c.100 disposals over the next two years is becoming more plausible.”
Maerk Brumby, of Langton Capital, said: “JD Wetherspoon’s shares have initially responded rather negatively to this morning’s news. At the time of writing, they are down some 9%.
“Whilst understandable on the back of a 5% to 10% edging back in forecasts, we see this as an overreaction.
“Having said that, JDW arguably does little to help the bulls when it comes to its share price. Its updates are brusque and (blessedly at 7am in the morning) brief and there tends to be a lot of comments to the effect that ‘it is what it is’.
“Taking the various influences into account, we see JDW’s rating, down below 14x on even-downgraded next year numbers, as too low for such a good operator.
“Timing is everything, of course, and today’s fall is not a surprise. That said, we see real value and would take such weakness as a buying opportunity.”
Anna Barnfather, of Panmure Gordon, said: “JD Wetherspoon’s trading over the Christmas period was in line with our expectations, however margins have deteriorated further than expected with the company warning that profits will now be towards the bottom of consensus range. We therefore expect to cut our forecast for PBT pre expectations of £74.9m further by c5% but will confirm after the call. The company faces stiff competition from the surge in supply of casual dining chains and its business model (location, size, sales mix and volume) and value proposition leave it significantly exposed to labour inflation, in our view. We retain our Sell recommendation.
“The company has limited ability to move pricing due to the group’s one brand strategy and value focus and instead has focused on increasing volume through promotion and trading more day-parts/breakfast sales. This high volume/value proposition is losing traction with consumers and has made the business more labour and capital intensive and contributed to the dilution in margins.
“With the Living Wage adding to the cost pressures, visibility on forecasts remains uncertain and we believe there is still potential downside pressure moving through the year.”
