12th Jul 2023 11:04
(Alliance News) - Analysts were pleased with JD Wetherspoon PLC on Wednesday, as the pub chain seems to have moved past pressures from the pandemic.
The Watford, Hertfordshire-based pub and hotel chain said like-for-like sales in the first 10 weeks of its final quarter were up 11% on the same period of pre-pandemic financial 2019. Year-to-date sales were 7.4% ahead of the pre-pandemic comparators.
On the previous year, like-for-like sales were up 12% in the final quarter.
"Sales are showing good momentum and this implies a strong thirst, which for so long went unquenched thanks to lockdown restrictions, for socialising over a drink. Wetherspoons' mix of decent quality beers, food and keen prices is likely to stand it in good stead," said Danni Hewson, head of financial analysis at AJ Bell.
Hargreaves Lansdown head of Equity Research Derren Nathan: "Wetherspoon's like-for-like growth has slowed slightly in the final quarter of the year, but in the current climate 11.5% is still no mean feat. What's more, this quarter didn't have the benefit of an extra bank holiday. If Tim Martin's chain can hold onto its modest price increases, as inflation starts to ease that's something of a sweet spot."
Nathan added that it is also "still the best value in town, and is appealing to a wider group of consumers than it used to."
Meanwhile, Shore Capital's Greg Johnson said: "JDW has navigated the current inflationary environment better than we had anticipated, supported by a pub sector which is proving resilient."
In the trading update, Wetherspoon also noted its improved debt position.
"A key takeaway from Wetherspoons' otherwise steady as she goes trading update was the news it is no longer going to be reliant on the slack offered by lenders during Covid as it brings its borrowings under control," said AJ Bell's Hewson.
"The move away from covenant waivers is a sign Wetherspoons has finally been able to put the pandemic behind it, allowing the pubs group to capitalise on an opportunity to draw in more cost-conscious punters and gain market share as a survivor in a sector which has endured an apocalyptic few years."
Russell Pointon, Director of Consumer at Edison Group, also noted the "fall in debt".
Wetherspoon said it has GBP289 million of financial headroom, compared with GBP241 million at the end of the third quarter, and net debt has dropped to GBP688 million, down from GBP738 million.
During the pandemic, Wetherspoon received waivers in respect of its banking covenants from its banking syndicate and in respect of a US Private Placement. It now expects that the waivers will no longer be required as at the end of the current quarter.
However, Liberum's Anna Barnfather said "the balance sheet remains stretched, and the estate is shrinking."
Wetherspoon noted that in the financial year-to-date, it has opened three pubs and sold, closed or surrendered to the landlord 28 pubs. It noted that there was a net cash inflow of GBP6.5 million from the 28 disposals.
"The disposals outlined above have been characterised in a small number of newspaper articles as a 'money-raising' exercise, provoked by the difficult trading circumstances for the hospitality industry in recent years," said Wetherspoon.
"This is a misinterpretation."
Looking ahead to the next financial year, it expects an "improved outcome", due to lower expectations for cost increases.
"We are holding our forecasts. JDW aspires to getting back to GBP100 million [pretax profit], at which point it would be prepared to resume paying dividends," said Peel Hunt Douglas Jack.
"Our 2023E PBT forecast is GBP3 million above consensus, but the potential for forecasting error (when there is a 7.5% price increase vs a 2% PBT margin) is huge. At present, we believe the forecast risk is on the upside, also due to falling wholesale energy prices. The challenge may be greater in 2025E if price increases become harder to make."
Meanwhile, Hargreaves Lansdown's Nathan said: "Whilst the group is in good shape, with a trimmed down estate of better performing pubs, the possibility of rising unemployment and a recession is likely to impact on all players in the hospitality sector. After today's trading statement there's certainly some pressure for management to deliver."
In March, the firm said pretax profit for the 26 weeks ended on January 29 was GBP57.0 million, swinging from a GBP13.0 million loss a year earlier. Revenue was up 13% to GBP916.0 million from GBP807.4 million.
Full year results are due to be released on October 6.
Shares were up 9.3% at 724.02 pence each on Wednesday morning in London.
Peel Hunts rates Wetherspoon at 'add', with a target price of 825.0p. Shore Capital reiterated its 'hold' rating, alongside its target price of 660p. Liberum also rates Wetherspoon at 'hold', with a 725p target price.
By Sophie Rose, Alliance News reporter
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