JD Wetherspoon has 'more to come', analysts reckon

There is "more to come" from JD Wetherspoon, reckons broker Peel Hunt as it upgraded the pub company on the back of a trading statement on Wednesday.

Over the first 49 weeks, the FTSE 250 pubco said like-for-like sales grew 5.2%, with LFL sales so far in the final quarter being up 5.2%, with a good chunk of the improvement due to favourable weather and the World Cup.

Peel Hunt said this was ahead of its previous 4.5% full year assumption, and the 4.5% increase in total sales was also better than expected.

Analysts increased their full year forecasts slightly, with profit before tax upped to £108.1m from £106.9m, above the City consensus of £105.3m, believe Wetherspoons' upgrade "is cautious; there should be more to come".

There was no update on margins in the trading update, "but the risk here is on the upside", the analysts said, with cost pressures including rising labour costs, utility levies, business rates and the sugar tax well documented and already factored into forecasts.

"The extra sales growth has not been fully factored into our above-consensus forecasts."

For 2019, Spoons needs 3-4% LFL sales to hold profits before cost mitigation, similar to 2018. "Any upside to 2018E forecasts should flow through to 2019E, a year in which we assume LFL sales rise by 3.0%."

Peel Hunt raised its target price to 1,300p from 1,200p, and its recommendation to 'add' from 'hold' .