On Wednesday, Deutsche Bank (ETR:DBKGn) analysts downgraded J D Wetherspoon PLC (LON:JDW:LN) (OTC: JDWPF) stock rating from Hold to Sell, adjusting the price target to £4.50 from the previous £6.00. The analysts pointed to upcoming UK budget changes in April as a significant challenge for the leisure sector, drawing parallels to the impact of the smoking ban and the Global Financial Crisis (GFC).
The analysts noted that a combination of increased employer National Insurance contributions, a 7% rise in the National Living Wage (NLW), and a 16% increase in the National Minimum Wage (NMW) for those under 21 are all set to coincide in April. This confluence of financial pressures is expected to impact labour-intensive businesses with narrow operating margins, such as J D Wetherspoon.
Deutsche Bank’s commentary highlighted that current sales momentum, with a 1.7% increase in February according to the CGA tracker, is not sufficient to meet the 7% growth forecasted for the sector. The analysts also observed that supermarkets are transferring fewer costs to consumers due to higher labour productivity, which is not the case for companies like J D Wetherspoon.
The downgrade follows J D Wetherspoon’s interim results, which showed an 8% fall in interim profit before tax (PBT), despite a 5% like-for-like sales growth. This decline occurred before the anticipated impact of the April budget changes. Deutsche Bank’s forecasts for J D Wetherspoon are 11% below the consensus, reflecting a cautious stance on the company’s financial outlook.
In addition to downgrading J D Wetherspoon, Deutsche Bank analysts maintained a cautious view on Greggs (LON:GRG) PLC, recommending a Sell rating with a target price of 1330p. The guidance from Deutsche Bank suggests a conservative approach to investing in certain stocks within the leisure and retail sectors ahead of the upcoming fiscal changes in the UK.
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