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Morning Briefing for pub, restaurant and food wervice operators

Wed 16th Jan 2013 - Breaking News - Tim Martin - "We’ve upped the tempo"
Tim Martin – like-for-like sales increases flow from “upping our tempo”: JD Wetherspoon founder Tim Martin has claimed that 8% like-for-like sale increases in the most recent quarter result from the company “upping the tempo”. He told Propel Morning Briefing: “I think it’s self-evident what’s going well – sales. We’ve just been trying to up the tempo a bit in what we do.” Martin said it was “hard to isolate” the precise reasons for the sales increase but the company has been offering coffee for £1.09 and matched the price of McDonald’s on its burger offer. Asked whether the new premium style of food presentation pioneered at airport and central London sites had helped food sales, he said: “I think it all helps. The airport sites have been useful over the years – they’re a good opportunity to try something different and if it works try it elsewhere.” The company reported margin down by 1.1% to 8.2%, linked to increased marketing costs, utilities, tax and food supplies. Martin reported the increased marketing costs were related to the introduction of a new menu in the period. “We had quite an expensive menu change a couple of months ago,” he said. Simon French, of Panmure Gordon, issued a buy recommendation on the shares this morning with a 615p Target Price. He said: “Management is guiding towards 4-5% like-for-like sales growth for the full year and an Second Half EBIT margin of 8.0-8.6%. The unexpected downward pressure on margin expectations is from higher gas consumption and semi variable elements of its gas hedges working against them. This will result in the gas cost increase being £2.5-3.0m compared to previous expectations of circa £1m. Yesterday’s government proposal to increase the prize limit on Category C gaming machines (typically found in pubs) from £70 to £100 provides a further boost to the investment case (typically 5-10% sales increase) with implementation due in November 2013.” However, Douglas Jack, of Numis Securities, issued a hold recommendation and a Target Price of 525p on the shares. He said: “Margins are continuing to disappoint, falling 40bps in Q1 and by circa 150bps in Q2. With the company facing tougher like-for-like sales comparatives and additional margin pressure in H2, we are cutting our 2013E forecast by 9%. We believe the valuation is full, with earnings expected to fall and debt to rise this year. We are cutting our 2013E PBT forecast by 9% as a result of the downside from weaker margins exceeding the upside from stronger like-for-like sales.”

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