A leading analyst has downgraded his forecasts for the pub sector in anticipation of a continued challenge to consumer demand in 2012. Paul Hickman at Peel Hunt said that on the back of a more negative consumer outlook for next year, with household spending forecast to decline by 1.5% and unemployment rate approaching 6%, he had revisited his trading assumptions on pubcos and downgraded calendar 2012 numbers. He said: “What is clear is that many of the companies now have strategies that leave them well placed to deal with a challenged environment, as well as balance sheets that are much better positioned than in 2008. “As a result, and also because we do not expect a consumer downturn comparable to 2008-09, our downgrades represent a flattening of growth prospects rather than actual declines.” The analyst has downgrade Greene King to Hold from Buy, with a target price of 507p down from 566p, while Marston’s have moved to Hold from Buy, with a target price at 107p from 130p. Hickman has kept Mitchells & Butlers at a Hold, but downgraded its target price to 250p from 260p. Both JD Wetherspoon and Spirit are kept as Buy recommendation, with JDW’s target price at 490p and Spirit’s at 73p. On Spirit, Hickman said that the group’s shares offered some of the best value in the sector at the moment. He said: “Even under the cautious assumptions above, we are confident the company will be able to generate double-digit earnings growth as well as a dividend expected to start at the FY2012 interim, yielding around 4%. "The key to Spirit’s business model is the conversion of under-invested pubs, utilising an adequate balance sheet. The under-investment under the previous financially challenged structure gives us assurance that the 25% ROI currently being achieved is sustainable into the future. "We also expect that levels of performance will be sustainable with normal re-investment, ie spend of £20-30,000 per site every 2½ - 3 years with a remodelling exercise costing some £125,000 every six to eight years. These are well within the capital we have forecast.” Hickman said that he did not expect JDW’s latest quarter’s LFL result to be dramatic. He said: “LFL sales were 0.4% ahead for the first six weeks to mid-September, although the Indian summer of October should have raised that to c.1%. That will be in excess of our flat forecast, although positive LFL sales at any level are likely to safeguard operating margins. “We therefore do not expect to be downgrading, although others may choose to take this opportunity to take a more cautious view of FY2012. As a result, a buying decision may be better timed after this announcement.”