JD Wetherspoon PLC’s (LON:JDW) position in the UK pub sector will allow it to “return to former profitability fast” once the coronavirus lockdown subsides, according to analysts at Jefferies who upgraded the stock to ‘buy’ from ‘hold’.
In a note on Tuesday, the broker also cut its target price for the company to 1,150p from 1,590p alongside several other UK publicans, although added that they saw “reasonable short-term liquidity” of over 12 months for the FTSE 250 group.
READ: Wetherspoons predicts profits will miss expectations and scraps dividend as coronavirus hits pubs
“We see some 13 months of cash to burn, although we have not made any assumptions around the material working capital position. If JDW was able to defer payment for 50% of the working capital amount, then the number of months of cash to burn would fall to c8. There may be scope to access UK Government liquidity schemes which are not currently open to Wetherspoon. Or an equity issue could be possible as we have seen elsewhere”, they added.
The broker also highlighted Wetherspoon’s “strong position within the UK pub sector – consumer traction and well-located, now largely freehold estate” that should allow it recover quickly once it is allowed to reopen its doors.
“We previously baulked at valuation but now see value”, Jefferies said.
Shares in Wetherspoon were 3.1% lower at 812.8p in early deals.