What's new?
■ Strong fourth-quarter sales growth
■ Margin recovery
■ Big uplift from Jubilee and Euro 2012
The hoots and cheers that rang out in the City in reaction to JD Wetherspoon's fourth-quarter trading update were reminiscent of those heard in the group's pubs during the Euro 2012 tournament. Indeed, the sporting event, coupled with the Jubilee and ongoing underlying progress, made for a bumper final quarter of the financial year. The pub operator blew analysts' expectations out of the water by reporting a 6.1 per cent surge in like-for-like sales in the 11 weeks to 8 July.
Perhaps most important, given fears that Wetherspoon had been chasing growth at the expense of margin, was that the sales surge has helped boost fourth-quarter operating margins to about 8.9 per cent compared with 8.1 per cent in the third quarter. The impressive performance was also helped by the fact that its pubs tend not to have big outside spaces, which limited the impact of the torrid weather on trading, and may have actually boosted numbers in its pubs during the big sporting occasions in the period.
Overall, fourth-quarter sales were 11.9 per cent ahead, helped by new pub openings, with around 40 pubs opened during the year and three closed. The plan is to open around 20 to 30 pubs in the coming financial year.
Peel Hunt says...
Buy. To achieve 16 per cent earnings growth in this market is a notable achievement, proving once again that it is wrong to bet against Wetherspoon. The second-half margin improvement is 30 basis points better than we expected. The level of top-line growth looks good and compares well with the good like-for-like trading at Greene King, which managed 7.1 per cent in its current period. We expect to upgrade both our pre-tax profit and EPS forecasts by 7 per cent to £72m and 41p, respectively, representing 16 per cent earnings growth. We upgrade our target price to 490p.
Investec Securities says...
Buy. In our view, Wetherspoon's growth demonstrates the resilience of its core customer base, as well as the attraction of Wetherspoon's units during major events to both returning and new consumers. The business has had a good quarter and, although it faces continued consumer pressure, high industry taxes and cost input inflation, we have raised our forecasts and regard a free cash-flow yield of 13.7 per cent, based on 2013 financial-year expectations, as highly attractive. Wetherspoon is our key pick in the licensed retail sector and we raise our discounted cash-flow-based price target to 550p.
