Numis upgrades JD Wetherspoons on strong Christmas trading

"Various sources suggest a strong Christmas period for the pub/restaurant sector: (i) Opentable bookings were +4% in December (-1% November), (ii) Barclaycard data at 7.9% was also an acceleration (360bp) and (iii) the Morning Advertiser polled publicans, of whom 50% said Christmas trading exceeded expectations," Numis analysts Tim Barrett and Richard Stuber said in a research note.

As a result, the broker is now pencilling in a 4-percentage-point improvement in JDW's like-for-like growth, resulting in overall LFL growth for its second quarter of 12-13%. However, visibility for the remainder of the year is low and depends a lot on the company's "tactical decisions on pricing".

Numis has now increased its full-year LFL sales growth forecasts from 8.5% to 10%, and includes in its forecasts a £40m total share buyback – following the repurchasing of £30m of stock so far this financial year.

The analysts said: "Our new forecasts look to be at the top of the consensus range and imply a FY24 [price-to-earnings multiple] of 19x and free cash flow (FCF) yield of 6.4%. At a 7% target FCF yield we set a target price of 750p and upgrade to a 'hold' rating."

JDW shares were up 1.9% at 828p.

Nevertheless, the broker said it still prefers sector peer Mitchell & Butlers, which will likely report a similarly strong Christmas but has "greater recovery potential" trading at just 11.2 times earnings with a FCF yield of 10%.