Broker snap: JD Wetherspoon focusing on growth

14th Mar 2011 10:34

Input cost pressures at JD Wetherspoon have caused a reduction in estimated margins, but sales growth is the focus of the business, according to UBS.Earnings before interest and tax (EBIT) margins fell 60 basis points (bp) in the first half to 9.4% due to the introduction of earlier opening hours, the hiring of regional catering managers to ensure new pubs trade well from the start, and increased expensed repairs and maintenance.While UBS notes that these were well-flagged and in some respects temporary, the group warned of rising input costs from food and energy costs in the coming months. "We have reduced out 2012 margin forecast by 50bp as a result," says the broker.However, UBS thinks that the company is on track to meet its "growth aspirations" and new openings should add 6% to sales this year and over 5% next year. "Like-for-like sales growth and a larger estate should help to offset input cost increases."A 'buy' rating is kept, but the target price is reduced from 500p to 475p to reflect lower margins in 2012 and a somewhat higher rent charge as well.