Shares digital

JD Wetherspoon (JDW) 267.5p

Demand for meals is rising at pubs chain JD Wetherspoon, but food price inflation has become a serious concern. (Read the full story: www.sharesmagazine.com/node/3566)

Shares says: The challenge is to pass on higher raw material costs to consumers. Wetherspoon prides itself on cheap selling prices, this is the backbone to its value proposition. Food price inflation affects every restaurant and pub operator, so selling costs are likely to rise across the board. But raising prices could alienate customers as they are already feeling the pressure of high(ish) interest rates and harder to get credit. Wetherspoon could accept lower margins and keep prices the same, in the hope of either a) raw material costs easing back or b) trading conditions improve and it can sneak in a small price rise. It has already indicated that making serving staff redundant wouldn’t really save money during current tough times – caused also by the smoking ban – as it believes business will soon pick up again. The shares fell sharply on its half-year results, but if anyone is going to survive difficult market conditions, it is going to be Wetherspoon. High risk, but a punt worth taking. x buy

The City - Landsbanki says: We believe that in the difficulties pubs are facing because of smoking issues and a fall in consumer confidence, a value oriented offering that does not stint on variety is a winner for pub-goers. JD Wetherspoon is expanding for the first time in years, taking advantage of weak competition and probably also benefiting from falling commercial property costs. At 9.6x multiple and 5.1% forecast dividend, this is the most inexpensive the stock has traded in at least a decade. x buy

The City - Blue Oar says: The company is open and very honest about current trading in a way that some other companies seek to avoid. There are no alarm bells ringing and we remain sure of a number of things 1) the pub is not dead, 2) if the pub is not dead, JDW will thrive 3) the company’s shares are not expensive, and 4) we have only ourselves to blame if there is a management buy out, is taken private/bid for at these sort of levels.