MARKET REPORT: Cheers! Investors raise a glass as pubs bounce back after HSBC says sector ‘looks well set to grow profits’
Pub stocks rallied as brokers across the City raised a glass to improved trading in the sector.
As fears of a consumer slowdown this year swept through the industry, HSBC told its clients that its concerns have been ‘defied’ by encouraging demand and a positive sales outlook among bars and restaurants.
‘We had grown increasingly nervous on the consumer outlook and the risk of earnings downgrades, but these have not shown through,’ the broker said.
‘In short, the sector looks well set to grow profits and further earnings upgrades could occur.’
HSBC upgraded its ratings on Wetherspoons and Mitchells and Butlers from ‘hold’ to ‘buy’
As a result HSBC upgraded its rating on Wetherspoons from ‘hold’ to ‘buy’ and nearly doubled the target price to 940p.
Mitchells and Butlers was also lifted from ‘hold’ to ‘buy’ while its target price increased from 185p to 300p.
Pubs have been affected by rising costs and falling consumer spending. Wetherspoons boss Tim Martin earlier this month said: ‘Inflation remains a more intractable issue’
But with energy prices falling and food inflation becoming more stable, analysts hope pub operators will be in a better position.
Wetherspoons was up 3.2 per cent, or 23p, to 733.5p, and Mitchells & Butlers added 1.4 per cent, or 2.8p, to 204.6p. The FTSE 100 fell 1 per cent, or 75.93 points, to 7446.14 and the FTSE 250 was down 0.5 per cent, or 84.47 points, to 18722.90.
In the latest FTSE reshuffle, Ocado escaped demotion from the blue-chip index. There was a promotion for IMI, the engineering group, which will enter the top tier in place of the commercial property giant British Land.
Asos, Capricorn Energy and Tullow Oil were among those heading out of the FTSE 250.
Stephen Harris, the boss of Bodycote will retire next year after more than a decade at the helm. He took over as chief executive of the heat treatment specialist back in 2009.
The news came as revenue rose 22 per cent to £281million in the first four months of the year. Bodycote shares fell 1.6 per cent, or 10.5p, to 638.5p.
WH Smith enjoyed a positive session as the retailer cashed in on the ongoing rebound in travel ahead of the peak summer trading period.
The company, which owns more than 500 stores across airports, hospitals, railway stations and motorway service areas across the UK, said that its travel revenue in the 13 weeks to May 27 was up 31 per cent compared to the same period a year ago.
Peel Hunt analysts said that the ‘most pleasing element’ of the group’s performance was arguably the 130 new stores that it is hoping to open. Shares rose 2.8 per cent, or 42p, to 1570p.
The race to snap up Purplebricks looked set reach a conclusion after a major shareholder, which last week made an eleventh-hour swoop on the online estate agent, withdrew its bid.
Lecram Holdings, which owns nearly 5.2 per cent of Purplebricks and is run by activist investor Adam Smith, had tabled a bid of 0.5p a share in cash, valuing Purplebricks at about £1.5million.
But it has decided to walk away on the basis that ‘the financial condition of Purplebricks was found to be significantly worse than expected’.
Now, the only deal that is now left on the table is a sale for a token price of £1 to rival Strike.
The online estate agent’s shareholders will vote on whether to back the offer in a general meeting on Friday.
Yesterday, the shares fell 27 per cent, or 0.17p, to 0.46p.