ii view: Wetherspoon shares continue post-results rally

Full-year results to 26 July

• Revenue up 5.2% to £2.24 billion
• Pre-tax profit down 28% to £58.6 million
• Final dividend of 8p per share
• Total dividend for the year unchanged at 12p per share
• Net debt down 1.2% to £715.8 million

Guidance:

• Like-for-like sales for the first nine weeks of the new financial year rose 8.6% compared to a year ago
• Currently expects pre-tax profits for the 2027 financial year to match City estimates of around £74 million

Chairman Tim Martin said:

“Wetherspoon has made a good start to the financial year, although it is at least partially due to weather, which will inevitably revert to the norm. At this early stage, we continue to anticipate profit before tax and separately disclosed items in line with current market expectations.”

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ii round-up:

Started in 1979, Wetherspoon (J D) (LSE:JDW) today operates 792 managed pubs across the UK and Ireland, with some also offering hotel accommodation, along with 23 franchised outlets.

Headquartered in Watford, Hertfordshire, it employs just over 42,000 people.

For a round-up of these latest results announced on 2 October, please click here.

ii view:

A constituent of the FTSE 250 index, Wetherspoon is known for converting unconventional premises into pubs, such as former cinemas and banks. Drinks generated most revenue during this latest financial year at 58%. That was followed by food at 37%, fruit and slot machines 3.5%, and hotels most of the 1.5% balance. Competitors include All Bar One owner Mitchells & Butlers (LSE:MAB), Fuller Smith & Turner  Class A (LSE:FSTA), Marston's (LSE:MARS) and Young & Co's Brewery  Class A (LSE:YNGA).

For investors, heightened costs for items including wages, repairs and business rates have all pressured profits. A forecast price/earnings (PE) ratio above the three-year average may suggest the shares are not obviously cheap. Group net debt of £715.8 million as of late July compares to a stock market value of £955 million, while a forecast dividend yield of just over 1% compares to estimates of over 2% for rival Fullers and drinks maker Diageo (LSE:DGE).

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On the upside, more beer gardens and outside seating areas are increasingly attractive to drinkers in an increasingly hotter UK climate. New pub openings continue to be targeted, with management previously targeting growth to around 1,000 outlets. Shareholder returns included £46 million of share buybacks over this latest financial year, while competition has eased since the pandemic given the failure of some smaller players.

In all, elevated costs continue to generate grounds for caution. However, reaction to these results has been positive, and the shares trade at a five-year high. Moves catering towards generally warmer weather and a value offering also likely make this well-managed business of ongoing interest to investors.

Positives:

• Value customer offering
• Majority freehold properties

Negatives:

• Tough economic backdrop
• Elevated fuel bills pressuring consumer spending

The average rating of stock market analysts:

Hold