Leading sector analyst Paul Hickman has trimmed his upgrade for JD Wetherspoon follows conversations with the managed pub operator.
Hickman changed his upgrade from 7% to 5%, which he said is “still a significant improvement, increasing earnings growth from 9% to an impressive 15%”.
Hickman, of Peel Hunt, said: “Wetherspoon surprised the market with the strength of its +6% LFL performance in the 11 weeks to the pre-close last week. Unexpected features of the announcement were the positive contribution of TV screens which helped sales during the Jubilee, Euro 2012, and also Wimbledon periods.
“Compared with our previous pre-tax forecast of £67.6m for the year to July 2012, we have taken sales growth of 9.2% and added 2% for week 53, to estimate total sales of £1193m, or £624m for H2. At 8.5% estimated H2 operating margin, that produces H2 operating profit of £53.3m, close to H1’s £53.1m.
“Despite further share buybacks we stay with an interest forecast of £35.6m (the buybacks were relatively early in H2), to give PBT of £70.8m. Assuming a tax rate of 28.5%, and average shares of 126m (vs 132m in FY11), we now forecast EPS of 40.5p. We upgrade FY2013E by 3%, as shown opposite. Earnings growth is only 1% in our forecast, but that is largely the result of the loss of the 53rd week, suggesting underlying growth of 3%.”
Hickman said Wetherspoons is demonstrating that “the all-round value represented by its unique brand has resilient appeal (see also pp2-6)”.
“In a similar way, its resourceful management has once again been able to balance volume and price to maintain positive sales momentum while covering the cost threat. We expect both challenges to become slightly easier tasks in FY13.
“Meanwhile management also continues to utilise cash in a balanced way, so that the prospective cut in openings to 20-30 (we assume 25) is countered by the enhancement from share buybacks. That should protect the downside.”
