Peel Hunt downgrades JD Wetherspoon after recent strength

Peel Hunt downgraded JD Wetherspoon to ‘hold’ from ‘add’ on Tuesday following recent share price strength.

The brokerage, which lifted its price target on the stock to 1,325p from 1,300p, said that operationally, JDW remains at the forefront of the sector. However, over 4% like-for-like sales failed to sustain positive LFL profit growth in the second half of 2018 despite a £5m cash flow boost from increasing the onerous lease provision.

"Given this and recent share price strength, we are cutting our recommendation," it said, adding that it expects the shares to pause for breath.

Peel also highlighted the fact that management’s guidance for 2019 is not particularly encouraging, pointing towards potentially much higher labour costs and limited price increases.

Earlier this month, Wetherspoon reported solid annual results and said 4% growth would be needed in the present year to maintain profits.

The pub group generated £1.69bn of revenue in the 52 weeks to 29 July, up 4.2% if excluding last year's 53rd week. Like-for-like-sales grew 5.0%, which was slightly short of the 5.2% reported for at 49 weeks, which the market expected to be maintained.

Profit before tax rose 6.2% to £107.2m, which was better than average analysts estimates that were looking for nearer £106m, with ongoing share buyback helping earnings per share rise 14.5% to 79.2p versus expectations of 77.2p.

At 0920 BST, the shares were down2.3% to 1,286p.