ii view: JD Wetherspoon cheers return to annual profit

Full-year results to 30 July

• Revenue up 10.6% to £1.93 billion
• Profit of £42.6 million, up from a loss of £30.4 million
• Net debt down 28% to £642 million
• No dividend paid over the year

ii round-up:

Founded in 1979, Wetherspoon (J D) (LSE:JDW) today operates 826 pubs across the UK and Ireland with around 50 also offering an attached hotel.

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

For a round-up of these latest results announced on 6 October, please click here. 

ii view:

Founded in 1979, Wetherspoon is known for converting unconventional premises such as former cinemas and banks into pubs. Listing on the stock market in 1992, today’s 826 pubs are down from 951 outlets back in 2015. Competitors 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 sales at around 57%, with food a further 38%, slot and fruit machines 3% and pub attached hotels most of the 2% balance. 

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For investors, the challenging economic backdrop including rising mortgage and rental costs may now be pressuring the available income of its customers. Group 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 around 2 times compares to under 1 at fellow pub groups Fullers and Marston's (LSE:MARS), potentially suggesting better value elsewhere. 

On the upside, its sales recovery from the pandemic has continued, increases in some drink and food prices have helped boost revenues, countering rising costs, while potential falls in energy costs going forward could assist performance during the new financial year. Net debt is also down by more than a quarter year-over-year and is now below that going into the Covid crisis, while competition has reduced since the pandemic given the failure of many smaller operators. 

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Wetherspoon shares have had a good year, but are still way below their pre-pandemic highs and have eased recently to their lowest in seven months. While the wider stock market is volatile and recession remains a real risk, a value customer offering in hard economic times is advantageous. A consensus analyst estimate of fair value at over 800p per share is also worth considering.

Positives: 

• Value customer offering
• Majority freehold properties

Negatives:

• Elevated costs
• Uncertain economic outlook

The average rating of stock market analysts:

Strong hold