UBS says buy Greene King, Marston’s and JD Wetherspoon
Investment bank UBS has upgraded pub shares Greene King (LON:GNK), Marston's (LON:MARS) and JD Wetherspoon (LON:JDW), stating that concern by investors in the sector over the consumer environment is "overdone".
"Apart from a brief flurry around better-than-expected trading in April, pub shares have underperformed the market and the leisure sector year-to-date," the bank said in a research note published this morning. "Our outlook for consumer spending in 2012 is better than for 2011, with household cash flow expected to grow three percent next year after falling a predicted three percent this year. Having more cash available for discretionary spending should make pub trading a bit easier, and we believe is not reflected in share prices."
UBS pointed out that trading in the industry had been volatile this year. April like-for-like sales were up 3.8 percent on good weather and a helpful holiday calendar, but "a dull May in terms of weather and a lack of pent-up demand meant like-for-like sales fell 0.3 percent".
UBS added that it believed good weather last year in June, and to some extent the 2010 World Cup, "will make comparisons difficult until mid-July when this period of difficult comparison should ease".
Consequently, the bank said it was shifting its stance from'neutral' to 'buy' on Greene King, Marston's and JD Wetherspoon. Greene King's target price has been increased from 525 pence to 530 pence, while Marston's and JD Wetherspoon's respective price targets are 110 pence and 490 pence.
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