Investec lowers target price on JD Wetherspoon

20th Jan 2016 10:22

(ShareCast News) - JD Wetherspoon was under pressure on Wednesday as Investec cut its target price to 760p from 800p after the pub operator guided full year profits lower.In a trading statement, chairman Tim Martin warned that full year profits "were likely to below the lower end of analysts' expectations" of £69m-£78m.The group reported that like-for-like sales (LFL) rose 3.3% and total sales by 6.3% in the first 12 weeks of the second quarter, meaning LFL sales have grown 2.8% in the year to date and total sales by 6.1%.However, the company said operating margins would be around 6.3% in the first half, 1.1% lower than the same period last year due to the 13% pay increases. The pay increases come ahead of the National Living Wage requirement, which comes into effect in April. It will mean a further 3% increase for qualifying workers."Total sales growth improved slightly to 6.3% from 6.1% in the first quarter but the operating margin was lower than we expected at 6.3% for first half," said Investec analysts Alex Paterson and Alistair Ross."We adjust our forecasts, raising sales, but cutting margin. In line with this, we trim our target price to 760p and retain our 'add'."The analysts added that Wetherspoon had continued to do the "right thing" by maximising customer service levels and long-term profitability.Investec raised its LFL sales forecast from an increase of 1.9% to a rise of 3% for full year 2016."Real disposable income is also rising and consumer expenditure may also improve on the increase in the National Living Wage," the analysts said."We trim our operating margin forecast by 30bps from 6.9% to 6.6% which results in a 4% reduction to earnings before interest and tax."Shares fell 7.08% to 626.75p at 1052 GMT.