Our concern that JD Wetherspoon’s profitability would suffer badly in the recession due to downward pressure on its already rock-bottom prices coupled with the running cost of its large pubs seem to have been overdone. Indeed, one pound pints and three quid meals have kept punters coming to its pubs, and canny management has kept margins robust.
In fact, like-for-like sales last year were ahead by 1.2 per cent and this momentum has continued in the first six weeks of the new financial year. Meanwhile, underlying operating margins actually managed to edge up by 20 basis points to 10.2 per cent, and the outlook for costs is improving. Excluding £22m of exceptional costs, which mainly related to falling property values, adjusted profit before tax rose 14 per cent to £66.1m, helped by 39 new openings.
What's more, the tough economic climate means it was cheaper than usual to develop new pubs - the average development cost was £850,000 compared with £1.5m a year ago. And, as Wetherspoon has one of the lowest net-debt-to-cash-profit ratio in the sector, it remains in a strong position to expand. The group's $140m (£87m) private placement, which is now due for repayment, will be satisfied from existing banking facilities.
KBC Peel Hunt forecasts pre-tax profits of £73.1m this year and EPS of 35.8p (£66.1m and 32.6p in 2009).
| JD Weatherspoon (JDW) | ||||
|---|---|---|---|---|
| ORD PRICE: | 521p | MARKET VALUE: | £724m | |
| TOUCH: | 521-523p | 12-MONTH HIGH: | 551p | LOW: 207p |
| DIVIDEND YIELD: | nil | PE RATIO: | 29 | |
| NET ASSET VALUE: | 121p | NET DEBT: | 254% | |
| Year to 26 Jul | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2005 | 810 | 39.8 | 14.0 | 4.3 |
| 2006 | 848 | 58.4 | 24.1 | 4.7 |
| 2007 | 888 | 62.0 | 31.8 | 12.0 |
| 2008 | 908 | 54.2 | 25.2 | 12.0 |
| 2009 | 955 | 45.0 | 18.2 | nil |
| % change | +5 | -17 | -28 | -100 |
