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(Sharecast News) - Shares in pub owner JD Wetherspoon were rising on Thursday on the back of positive comments from Numis, which upgraded its rating on the stock from 'reduce' to 'buy' after factoring in the company's recent improvement in 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%.
