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Wed 5th Jul 2017 - Update: Booker and JD Wetherspoon
Booker to report like-for-likes up 4.2% at AGM: Booker Group, the food wholesaler, is holding its Annual General Meeting at 11am today. At the meeting, chief executive Charles Wilson will read out the following trading update: “Overall Booker Group had another good quarter (in the 12 weeks to 16 June). Group sales rose by 4.0% on the same period last year with like-for-likes up 4.2%. Non tobacco sales grew by 9.6% on a like-for-like basis. Favourable weather and the late Easter assisted this growth. Tobacco sales continued to be adversely impacted by changes in tobacco legislation, down 7.9% like-for-like. The group had a solid quarter for customer satisfaction and cash profit. Booker Direct, Chef Direct, Ritter and Booker India performed as we expected. Premier continues to grow and we continue to make good progress with Budgens and Londis. Our balance sheet remains strong with a net cash position. As previously announced, we are today seeking shareholder approval to pay a special dividend of 3.02 pence per ordinary share at a cost of approximately £54m. This is in addition to the final dividend of 4.97 pence per ordinary share which is also being proposed at the Annual General Meeting. On 27 January we announced the planned merger with Tesco and we are currently going through the review process with the Competition Authority. As a result of the proposed merger, we are in an offer period as defined in the Takeover Code and will not be making forward looking statements for the duration of the offer period. This was a good quarter. Our plans to ‘Focus, Drive and Broaden’ the group are on track. On 27 January we announced the planned merger with Tesco and we are going through the competition process. Meanwhile business as usual is going well as we continue to improve choice, prices and service for our retail, catering and small business customers.”

Douglas Jack downgrades JD Wetherspoon to ‘Reduce’ from ‘Hold’: Peel Hunt leisure analyst Douglas Jack has downgraded his recommendation on JD Wetherspoon (JDW) shares to ‘Reduce’ from ‘Hold’. He said: “Wednesday’s (12 July) trading update should be strong, but investor focus should now shift to 2018E, a year for which we/consensus forecast profits to fall against a backdrop of significantly higher operating costs and a weaker consumer outlook. Despite it underperforming in the last recession, JDW is valued at a premium to its freehold peers on most metrics. Take profits. The 2017 results should beat consensus (PBT £90.0m), in our view. Our £91.5m PBT forecast assumes like-for-like sales remain at 3.5% and Ebit margins grow by 55bps. We view 2017 margins as the main source of upside risk. However, the outlook for 2018E is very tough, in our view: Like-for-like sales will need to grow by 3-4% to maintain profits; a scenario that equates to a 25bps margin reduction. For consumers, inflation (c3%) is forecast to exceed average earnings growth (2.0-2.5%) over the next year and, given consumer debt levels, the MPC’s hawkish comments on interest rates are alarming. Our 2018E forecasts assume that like-for-like sales rise by 3.0% and margins fall by 20bps, anticipating further price increases. It is not encouraging that JDW underperformed its freehold peers in the last consumer recession, with like-for-like profits falling for five consecutive years (from being -6.6% in 2008). We forecast PBT falling (slightly) again in 2019E due to the fixed cost on £600m (c80%) of the debt rising from 4% to 5% on 31 July 2018. JDW has a 54% freehold estate versus an 88% average for its freehold peers (Fuller Smith & Turner, Greene King, Marston’s and Mitchells & Butlers). Despite this, a worse like-for-like sales track record during the last recession, similar like-for-like sales (2.9% versus the peer’s 2.6% per annum average) and worse margin (-27bps versus -13bps pa average) track record since 2007, JDW trades on an EV/Ebitda premium to its freehold peers. Given the valuation and consumer outlook, we are cutting our recommendation to ‘Reduce’.” 

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