Leading analyst Douglas Jack has forecast that Spirit will report a 9% rise in pre-tax profits to £21.9m, driven by 4.8% like-for-like sales growth in managed pubs and a 2.6% increase in leased like-for-like net income, at its H1 results on 24 April.
Issuing a Buy recommendation for the company at a Target Price of 110p, Jack, of Numis, said: “Against soft, weather-affected comps, recent trading should be strong, resulting in the company moving even further ahead.
“Strong trading largely reflects brand improvement and rising service levels, with Taylor Walker, Fayre & Square and Flaming Grill outperforming. As volumes, prices and average spend are all in growth and net cost inflation is at just 2%, EBIT margins should be up (we forecast by 20bps in H1).
“Leased like-for-like net income rose 2.6% in H1, although the underlying increase was 2.2% excluding changes in the supply network ordering process (which caused some sales to have been brought forward into H1). If we also exclude the benefit of better weather, like-for-like net income would still have been positive, driven by better asset quality, product, training and support.
“We expect to at least hold our full year forecasts (£57.9m PBT; consensus £56.2m) which assume 2.5% managed LFL sales, 0.4% leased LFL EBITDA growth and the acquisition of five pubs in H2. Trading should have moved further ahead in early H2, aided by easy weather-affected comps of: -4.1% managed LFL sales; -4.8% leased LFL net income.
“Spirit’s ongoing operational outperformance against its national competitors should justify at least a sub-sector average EV/EBITDAR rating (10.9x), rather than the lowest rating (9.3x), in our view. We believe Spirit’s stronger EBITDA growth, net debt/EBITDA reduction and progressive dividend should now lead to another re-rating.”
