Leading analyst Simon French has reiterated his Buy recommendation and 806p Target Price for JD Wetherspoon following the managed operator’s Q1 results yesterday.
The company reported a 3.7% rise in like-for-like sales in the 13 weeks to 27 October, which French pointed out was ahead of consensus expectations of 3% and his forecast of 3.5%.
“The performance implies 3.8% like-for-like sales growth in the last seven weeks. Operating margin for the quarter was 8.3%, compared to 8.6% for the same period in the prior year and in-line with our estimate of 8.3%. The group has raised its opening guidance to 40-50 new pubs this year (from 30 previously) and continues to target a reasonable outcome for the year. Therefore we expect no change to consensus forecasts of £81.9m PBT (49.2p EPS).
“Our forecasts are broadly in line with consensus and on these the stock trades on a CY 2014E adjusted EV/EBITDAR of 8.2x and yields 1.8%.
“The group continues to deliver two-year double-digit like-for-like sales growth and we see better than average forecast upgrade potential as the year unfolds. Therefore reiterate our Buy recommendation and 806p Target Price, implying c13% potential upside.”
French, of Panmure Gordon, highlighted other factors that are likely to benefit JD Wetherspoon across its full year.
“Christmas Day falling on a Wednesday is about as good as it gets for the licensed retail trade so we expect continued good growth over Q2. We also expect the increase in Category C gaming machine prizes to £100 in January to drive machine revenue growth over the next 18 months. We expect the group to be a modest beneficiary of the FIFA World Cup at the end of its financial year.”
