Wetherspoon Beats Stock-Price Targets on Pub Sales: London Mover

JD Wetherspoon Plc, the U.K. owner of almost 900 pubs, rose for the seventh day in eight, exceeding the price targets of 12 of 13 analysts, as investors bet on revenue prospects at the provider of low-price drinks and meals.

“We expect continued strong top-line performance” when the company issues a trading update on May 8, Simon French, an analyst at Panmure Gordon & Co. who recommends buying the shares, wrote today in a note. “The market will as usual, wrongly in our view, obsess about the margin but we will continue to focus on absolute cash generation.”

Wetherspoon rose as much as 1.6 percent to 604 pence and traded at 601.5 pence as of 10:34 a.m., for an eight-day gain of 9 percent. The operator of the Green Man pub near the Bank of England in London is the best performer in the past three months on the nine-member Bloomberg U.K. Pub Index, with a gain of 17 percent compared with the index’s gain of 5 percent.

In the U.K. budget in March, Chancellor George Osborne scrapped the government’s “beer duty escalator,” which raised the price of a pint by 2 percent above inflation every year. Osborne also cut beer duty by 1 pence. Tim Martin, founder and chairman of Wetherspoon, had campaigned for the above-inflation policy to be abandoned.

“Dinner party” politicians in “wealthy suburbs” who don’t frequent pubs are harming the industry’s earnings, Martin said last year in a spirited Bloomberg Television interview. He reiterated Wetherspoon’s low-price strategy, saying customers’ incomes are being squeezed.

Margin Pressure

JD Wetherspoon said in March that while first-half sales rose 10 percent from a year earlier, its operating margin fell 1 percentage point to 8.3 percent. Analysts including Douglas Jack at Numis, who rates the stock a hold, say that until the Watford, England-based company can pass on cost increases to customers it won’t be as attractive to investors.

Panmure’s French predicts the company will report like-for-like sales growth of about 6 percent for the fiscal third-quarter. Cash generation is improving, he said, “suggesting management continues to optimise the sales and margins trade-off.”

French predicts that Wetherspoon shares will rise to 615 pence, the only target among analysts who report findings to Bloomberg that exceeds the current price. He is among three analysts with a buy recommendation, while 13 have a hold rating and two -- including Victoria Greer at JPMorgan -- advocate selling. The average price target is 524.8 pence, from 13 analysts who share that data.

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