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HSBC cautious on UK pubs, calls time on Greene King and JD Wetherspoon ratings

In a sector review, the HSBC analysts said: “We can’t be sure of a consumer downturn, but do worry about the continued increase in costs and the ease with which this can be mitigated

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They added “Operators have already struggled with this even in a benign consumer environment. We don’t see obvious valuation support"

Analysts at the broking arm of high street banking giant HSBC are worried that the UK pubs sector faces “twin risks from consumer weakness and rising input costs” and have downgraded their ratings for both Greene King PLC (LON:GNK) and JD Wetherspoon PLC (LON:JDW) as a result.

In a sector review, the HSBC analysts said: “We can’t be sure of a consumer downturn, but do worry about the continued increase in costs and the ease with which this can be mitigated.”

READ: Greene King's full-year profits fall on Spirit Pub integration costs

They added “Operators have already struggled with this even in a benign consumer environment. We don’t see obvious valuation support, and think downgrades will drive share price weakness. “

The analysts cut their rating on brewer and pubs operator Greene King to ‘reduce’  from ‘hold’ and lowered their target price to 595p from 680p amid concerns over its cost outlook in particular.

They downgraded JD Wetherspoon’s rating to ‘hold’ from ‘buy’, with a reduced target price of 1,090p, down from 1,200p, as they still think the pubs giant is “best placed to trade through the weakness, though the strong share price performance means it’s no longer cheap in the circumstances.”

READ: Wetherspoon boss Tim Martin tells Brexit ‘gloomsters’ to “put a sock in it”

They maintained ‘hold’ on both Marston’s plc (LON:MARS), with an unchanged 115p target price, and on Mitchells & Butlers PLC (LON:MAB) for which they raised their target price to 265p from 260p.

In morning trading, Greene King shares shed 4.8% at 33p, JD Wetherspoon lost 0.6% at 1,085p, Marston’s was off 0.4% at 115.1p, but M&B shares gained 1.2% at 250.9p.

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