Berenberg upgrades 'category killer' Wetherspoon's to 'buy'

Analysts at Berenberg upgraded pubco JD Wetherspoon to 'buy' from 'hold' on Tuesday, labelling the landlord as a clear "category killer" in the value pub market thanks to its relentless drive towards price leadership and customer satisfaction.

Berenberg said that by accepting lower margins and higher volumes, Wetherspoon's has "consistently outperformed the wider pub market" over a number of years.

Furthermore, with like-for-like growth averaging more than 4% since 2012, the broker thinks its position as a cult brand has been firmly cemented.

"We assume lfl growth of 3% can be delivered over the coming years, which may prove conservative. All else being equal, for every 1% increase in lfl forecast, EPS would increase by c10%," wrote Berenberg's analysts.

In its Tuesday morning research note, Berenberg said it had "growing confidence" that Wetherspoons will continue to deliver solid like-for-like growth and strong cash generation moving forward and that any downside risks should be minimised by levers at the company's disposal and the £300m of "firepower that could be deployed on share buybacks" over the next three years.

With shares trading close to their lowest multiple since January 2017, Berenberg had no qualms with upgrading Spoons to 'buy', as it raised its price target from 1,150p to 1,450p.