Liberum ups price target on JD Wetherspoon, stays at 'hold'

Liberum has upped its price target on JD Wetherspoon, but remains cautious about the scale and pace of the pub chain’s recovery.

The broker has increased its price target on the stock to 1,400p from 1,150p. But analyst Anna Barnfather maintained the rating at ‘hold’, despite half of Wetherspoon’s pubs due to reopen from next month.

She said: "JD Wetherspoon plans to reopen its pubs starting in April, when we expect a gradual recovery with sufficient liquidity to step up investment activity in due course.

"However, we remain concerned over its high volume of sales/vertical drinking and are less sure of its ability to push prices significantly, which sit he crux of the bull case." Vertical drinking refers to drinking while standing at the bar.

"We make no changes to forecasts, but increase our target price to 1,400p based on sector average EV/EBITDA multiple and the improved clarity on the reopening timetable."

Barnfather continued: "Sales performance in the six months to 24 January 2021 suffered particular from the ban on vertical drinking and capacity restrictions, given its largest sites that rely on high density of people.

"Management expects to open around 450 of its 872 pubs with outdoor areas on 12 April. However, we expect initial recovery will see further pressure on its high volume and low margin model, with recovery accelerating in the 2022 full year as all trading restrictions ease.

"April is set to continue to be loss making, with over around half of its pubs still closed."

As at 1315 GMT, shares in JD Wetherspoon were ahead 1% at 1,298.0p.