Deutsche Bank downgrades Greggs and Mitchells & Butlers after budget tax changes

Deutsche Bank has downgraded its ratings for Greggs and Mitchells & Butlers in light of the governments recent changes to employer national insurance contributions, saying that they disproportionately impact a "labour-intensive leisure sector".

The bank has lowered its stance on Greggs from 'hold' to 'sell', cutting its target price from 2,600p to 2,400p, and cut M&B from 'buy' to 'hold', shifting its target from 360p to 280p.

Sector peer JD Wetherspoon was left at a 'hold', but the target has come down from 750p to 600p.

Last week's announced tax changes in the autumn budget mean that, from April 2025, the earnings threshold at which employers start paying national insurance contributions will fall from £9,100 to £5,000, while the rate being paid will rise from 13.8% to 15.0%.

"The changes had already been anticipated directionally, but in magnitude (or structure), were worse than factored into company guidance and investor expectations," Deutsche Bank said in a research note on Friday.

"We expect operators to raise price but do not view this as a panacea: full recovery would require over 5% increases at a time of slowing CPI growth; the sector's premium to CPI growth has not exceeded 2ppt in over 20 years. We see the parts of the sector with high GM/low labour intensity as best placed, whereas high-service, lower margin operators have less protection and most downside risk to consensus estimates."

Greggs' share price was down 6.1% at 2,636p by 1017 GMT and M&B dropped 5.4% to 239p, while JD Wetherspoon was trading 0.4% higher at 630p.