Deutsche Bank initiates Wetherspoon and Restaurant Group at 'sell'
Deutsche Bank initiated coverage of JD Wetherspoon and Restaurant Group at ‘sell’ and price targets of 600p and 290p respectively, in a note on pubs groups on Thursday.
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Wetherspoon (J.D.)
723.00p
16:35 25/04/24
With the outlook for the UK pubs and restaurant sector is uncertain and assumptions for next year becoming more cautious due to worries about consumer spending, Deutsche saw future pressure on both sales and profits and called time on the sector for now.
Noting that JD Wetherspoon's margins are an outcome of the company’s sales activity and that its low cost model relative to peers is the "more susceptible to cost inflation", with food and staff cost inflation likely headwinds, along with business rates.
The ongoing competitive operating environment is highlighted by JDW’s reduced new openings programme.
Casting its eye over Restaurant Group, the arrival of a new CEO with significant multi-site retail experience is "reassuring", but there are multiple threats to the rating and earnings resurrection.
“Trading weakness in the core format; ongoing roll-out despite format underperformance; increased competition in leisure/retail parks driven by landlords seeking to fulfill consumer’s wider-ranging aspirations; the cost of regaining lost customers; and, increased costs,” said the note.
The bank is also concerned that the company’s the core format, Frankie & Benny’s, will continue to struggle as the market moves from being competitive due to increased supply, to competitive from lower consumer spending, which could lead to earning downgrades and sites closures.
DB's estimates are some 10% below consensus, reflecting its greater caution around the delivery of a turnaround and minimal recovery in the full year of 2017.
DB also initiated pubs Marston and Mitchells & Butlers at ‘hold’ with price targets of 145p and 245p respectively. It reiterated its ‘buy’ recommendations on Greene King and Enterprise Inns but lowered its price target for the former to 875p from 950p and maintained its price target of 170p for the latter.