JD Wetherspoon PLC (LSE:JDW) remains a 'sell' rated stock for Deutsche Bank after its latest results, as it sees rising costs and weak returns continuing to weigh on the pub operator’s outlook.
Analyst Tim Barrett at the bank reiterated a 490p target price, well below the last close of 624p.
The cautious stance was underscored by the latest full-year results that highlighted an ongoing "disconnect" between 4.5% cost growth and like-for-like sales growth that has fallen to 3.2% in the first weeks of the new financial year, from 5.1% in the past year.
While maintaining an EBIT margin of 6.9% appeared resilient at first glance, the analyst noted this was helped by what looks like a one-off £15 million reduction in repairs, and that underlying margins actually declined by 75 basis points.
He added that JDW faces further pressure from higher National Insurance and minimum wage costs – around £40 million this year – and an unbudgeted £7 million electricity standing charge.
These headwinds, combined with a "poor" return on capital and "high" leverage, were enough to justify the continued negative view on the stock, Barrett said.