ii view: JD Wetherspoon swallows first-half loss

2020 has been like no other, but does a tough economic backdrop play into this pub company’s hands? 

First-half results to 24 January

• Revenue down 54% to £431 million
• Pre-tax loss of £46 million from a profit of £58 million
• Net debt flat at £812 million
• No interim dividend payment

Chief executive Tim Martin said:

" Wetherspoon and its employees, along with the hospitality industry, have worked very hard to comply with ever-changing government guidelines. It is disappointing that so many regulations, implemented at tremendous cost to the nation, appear to have had no real basis in common sense or science - for example, curfews, "substantial meals" with drinks and masks for bathroom visits.

"The future of the industry, and of the UK economy, depends on a consistent set of sensible policies, and the ending of lockdowns and tier systems, which have created economic and social mayhem and colossal debts, with no apparent health benefits."

ii round-up:

Founded in 1979 in North London, Wetherspoon (LSE:JDW) today employs over 37,000 people.

Headquartered in Watford, Hertfordshire, it operates over 850 pubs and around 50 hotels connected to its pub outlets with approximately 1200 rooms. 

For a round-up of these latest results, please click here. 

ii view:

All pubs have been closed since the end of December 2020. As such, Wetherspoon sales as of that point have been zero. In January, it raised £93.7 million in new equity. The group’s lending terms currently require a minimum liquidity covenant of £75 million. As of 24 January 2021, Wetherspoon had liquidity of £225 million. Its January trading update pointed to a weekly cash burn of £4.1 million while its pubs are closed. The government has now tentatively detailed a plan out of lockdown. A beer garden-only reopening has been scheduled for April, followed by table service only come May, then a hoped-for full reopening in June.

For investors, the outlook remains uncertain. The UK government’s road map out of lockdown is only tentative and negative Covid-19 data could see restriction dates extended. The dividend also remains suspended with net debt of just over £800 million set against a stock market value of £1.66 billion. 

More favourably, a strong UK vaccination programme is underway, with investor support of its January equity fundraising arguably a sign of long-term optimism. Covid constrained incomes and rising unemployment also elevate its value offering, with management recently highlighting a £911 million increase in sales between the full-year 2008, or the approximate start of the last recession, and the full-year 2019. In all, its strong track record and ability to bear down on costs currently sit against an analyst fair value estimate of 1,214p per share.

Positives: 

• Liquidity of over £200 million
• Value customer offering

Negatives:

• Uncertain Covid clouded outlook
• Suspended dividend payment

The average rating of stock market analysts:

Strong hold