ii view: optimism brewing at Wetherspoons

Third-quarter trading update to 28 April

• Like-for-like sales up 5.2%
• Total sales up 3.3%
• Net debt of £685 million, down from £694 million in late January

Guidance:

• Now expects full-year profit to be at top end of City forecasts, up from a previous “reasonable outcome”

ii round-up:

Founded in 1979, Wetherspoon (J D) (LSE:JDW) today operates 809 pubs across the UK and Ireland with around 50 also offering an attached hotel.

Headquartered in Watford, Hertfordshire, it employs more than 40,000 people.

For a round-up of this latest trading update announced on 8 May, please click here. 

ii view:

Started in 1979, the FTSE 250 pub company opened its first outlet in Colney Hatch Lane, Muswell Hill, North London. It came to the London Stock Exchange in 1992, with its estate peaking at 955 outlets in December 2015 and management recently hinting at a possible return to 1,000 pubs at some point. Bar sales over its last financial year accounted for its biggest slug of revenues at around 57%, with food a further 38%, slot and fruit machines 3%, and pub-attached hotels most of the 2% balance.

For investors, pressured consumer spending given heightened borrowing costs cannot be overlooked. Business costs including energy, food and wages have risen. The weather regularly impacts customer demand and sales, while despite some share buyback activity, the dividend has remained halted since the start of the pandemic. 

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More favourably, sales and profits have made a recovery from the Covid crisis with management now more optimistic regarding this financial year’s profit outcome. Costs such as those for energy have eased, a revamped food menu may assist sales, while competition has reduced since the pandemic given the failure of some smaller players.

In all, and despite ongoing risks, a value customer offering in tough economic times and a consensus analyst estimate of fair value sat at 880p per share is likely to keep existing shareholders patient. 

Positives: 

• Value customer offering
• Majority freehold properties

Negatives:

• Tough economic backdrop
• Elevated costs

The average rating of stock market analysts:

Strong hold