MARKET REPORT: Cheers! Investors raise glasses as pubs bounce back after HSBC says industry ‘looks well poised to grow earnings’
Pub shares rose as brokers across the city raised their glasses to improved industry trading.
As fears of a consumer slowdown swept through the industry this year, HSBC told customers it “defied” its concerns with encouraging demand and a positive sales outlook at bars and restaurants.
“We had become increasingly nervous about the consumer outlook and the risk of earnings cuts, but they have not come through,” the broker said.
“To sum up, the industry looks good to grow earnings and further earnings improvements could occur.”
HSBC upped its ratings for 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 its price target to 940 pence.
Mitchells and Butlers was also lifted from hold to buy, while the target price increased from 185p to 300p.
Pubs have been hit by rising costs and falling consumer spending. Wetherspoons boss Tim Martin said earlier this month: ‘Inflation remains a trickier problem’
But with energy prices falling and food inflation stabilizing, analysts hope cafe operators are in a better position.
Wetherspoons rose 3.2 percent, or 23 pence, to 733.5 pence, and Mitchells & Butlers added 1.4 percent, or 2.8 pence, to 204.6 pence. The FTSE 100 was down 1 percent, or 75.93 points, to 7446.14 and the FTSE 250 was down 0.5 percent, or 84.47 points, to 18722.90.
In the last FTSE realignment, Ocado escaped relegation from the blue-chip index. There was a promotion for IMI, the engineering group, which will enter the top tier in place of commercial real estate giant British Land.
Asos, Capricorn Energy and Tullow Oil were among those exiting the FTSE 250.
Bodycote boss Stephen Harris will retire next year after more than a decade at the helm. In 2009 he took over as CEO of the heat treatment specialist.
The news came as sales jumped 22 percent to £281 million in the first four months of the year. Shares of Bodycote fell 1.6 percent, or 10.5 pence, to 638.5 pence.
WH Smith enjoyed a positive session as the retailer benefited from the continued uptick in travel ahead of the peak summer trading period.
The company, which owns more than 500 stores in airports, hospitals, train stations and motorway service stations across the UK, said travel sales in the 13 weeks to May 27 were 31 percent higher than in the same period a year ago.
Peel Hunt analysts said perhaps the “most pleasing element” of the group’s performance was the 130 new stores it hopes to open. Shares were up 2.8 percent, or 42p, to 1570p.
The race to pick up Purplebricks appeared to be coming to an end after a major shareholder, who launched an attack on the online broker at the 11th hour last week, withdrew his offer.
Lecram Holdings, which owns nearly 5.2 per cent of Purplebricks and is run by activist investor Adam Smith, had made an offer of 0.5 pa share in cash, valuing Purplebricks at around £1.5 million.
But it has decided to walk away because ‘Purplebricks’ financial condition turned out to be significantly worse than expected’.
Now the only deal on the table right now is a sale for a token price of £1 to compete with Strike.
The shareholders of the online broker will vote on Friday at a general meeting on whether or not to support the offer.
Shares fell 27 percent, or 0.17 pence, to 0.46 pence yesterday.