Restaurants and pub owners Greggs, JD Wetherspoon and Mitchells & Butlers were upgraded to “buy” as Deutsche Bank predicted a hospitality revival in the back end of 2023.
“2022 saw the UK Pubs & Restaurants sector bear the brunt of the cost-of-living crisis,” said the investment bank.
Increasing energy, wages, food, and beverages costs “meant profits were decimated” last year, with pub share prices falling between 46% and 54%.
In the last twelve months, The Restaurant Group has dropped by 63% while Mitchells and Butlers is 36% lower.
Restaurant growth continues to lag behind bars and pubs.
In December, pubs saw 19% growth in like-for-like sales compared to the year prior while restaurant sales only grew by 9% in the same period, research from CGA found.
However, “value-oriented” companies such Greggs and Mitchell and Butlers “have been up 50% since Sep’22,” the German bank noted.
“This reflects better-than-expected trading in the crucial Christmas season, given the first ‘normal’ in 3 years, and the football WC,” Deutsche Bank said.
With downtrading continuing, well-capitalised stocks that can keep prices low are likely to succeed.
Deutsche Bank has targeted a £29.50 price for Greggs, increasing its forecast by £1- the bakery chain is currently trading at £26.21.
Mitchells and Butlers (167p) and JD Wetherspoon (472p) are targeted to reach a 240p and 640p price respectively.