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A smaller sales decrease than expected boosts confidence in the pub operator
by Dan Coatsworth
It’s not often that analysts upgrade a stock when sales are falling, but in the case of pubs operator JD Wetherspoon, the City has reacted positively to news that trading in recent months wasn’t as bad as expected.
Greg Feehely at Altium upgraded his rating to buy from hold after Wetherspoon said business had picked up in March and April following a slow February. Altium believes the pubs group will produce a 3% drop in like-for-like sales and then remain flat during 2009, somewhat below market consensus.
The benefit of having low expectations is that any improvement in trading during the current quarter could trigger a small upgrade to earnings forecasts. ‘We continue to see long-term value in JDW shares,’ says Feehely, noting that real ale sales have been growing ahead of the wider market and wine, food, coffee and tea are also moving forward.
Not everyone shares Feehely’s positivity, however. As Shares’ recent Griller interview with Wetherspoon (24 April, 2008) suggested, the business needs a plan to combat slower consumer spending, the smoking ban and rising input costs.
The company is confident it will ride out difficult market conditions but is understandably cautious on the short-term. It is for this reason, despite its shares looking good value, that Investec analyst Matthew Gerard suggests the stock is no more than a ‘hold’.