Interactive Investor

ii view: JD Wetherspoon sees glass half-full

18th July 2023 11:27

by Keith Bowman from interactive investor

Share on

A value customer offering, reducing debt and hopeful that cost pressures will ease. Buy, sell, or hold?

.

Fourth-quarter trading update

  • Like-for-like sales up 11.5% compared to Q4 last year
  • Like-for-like sales up 11% compared to Q4 2019 before the pandemic
  • Net debt of £688 million down from £920 million last year

Guidance:

  • Expects an improved outcome for the next financial year
  • Invest with ii: Top UK Shares | Share Tips & Ideas | Open a Trading Account

ii round-up:

Founded in 1979, Wetherspoon (J D) (LSE:JDW) today operates 827 pubs with around 50 also offering an attached hotel.

Headquartered in Watford, Hertfordshire, it employs over 40,000 people.

For a round-up of this latest trading update announced on 12 July, please click here

ii view:

Coming to the stock market in 1992, Wetherspoon is known for converting unconventional premises such as former cinemas and banks into pubs. Its rivals include owner of the All Bar One chain Mitchells & Butlers (LSE:MAB), Young & Co's Brewery Class A (LSE:YNGA) and Fuller Smith & Turner Class A (LSE:FSTA). Bar sales account for its biggest slug of revenue at around 57%, with food a further 38%, slot and fruit machines 3% and pub attached hotels the balance of 2%.

For investors, the difficult economic backdrop including rising mortgage and rental costs may now be pressuring the disposable income of its customers. Costs such as energy, food and wages have risen, the dividend payment has remained suspended since the start of the pandemic, while an estimated price-to-net asset value of over 2.5 times compares to under 1 times at fellow pub groups Fullers and Marston's (LSE:MARS), potentially suggesting better value elsewhere. 

More favourably, increases in some drink and food prices have helped boost revenue, countering rising costs. Any decline in energy costs could assist performance during its next financial year, a focus on reducing debt remains ongoing, while competition has reduced following the pandemic given the failure of many smaller operators. 

For now, and while some caution looks sensible, constrained consumer budgets should continue to favour Wetherspoon’s value orientated approach, giving grounds for investors to stay patient.

Positives: 

  • Value customer offering
  • Majority freehold properties

Negatives:

  • Elevated costs
  • Uncertain economic outlook

The average rating of stock market analysts:

Strong hold

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

Get more news and expert articles direct to your inbox