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Wetherspoon chairman takes aim - everywhere

The pub group's chairman remains in fighting form
March 19, 2021
  • Limited respite on trading through the second half
  • Debt ratio to remain at current level for foreseeable future 

Tim Martin has been one of the country’s most high-profile critics of the government’s lockdown measures. And it is easy to see why the outspoken chairman of JD Wetherspoon (JDW) has taken such a hard line, particularly when you thumb through the pub group’s half-year figures.

The group swung to a pre-exceptional operating loss of £20.7m against a profit of £76.6m at the half-year mark in FY2020, while like-for-like sales decreased by 53.9 per cent. However, any meaningful comparison on that basis is rather elusive given the circumstances.

The group reconfirmed that it plans to reopen 394 of its pubs in England from 12 April, around 45 per cent of the total, while 60 pubs north of the border will be opening their doors from 26 April. However, drinking will initially be restricted to beer gardens, and then table service, until a full reopening in June, so financial performance will continue to suffer through the second half of the group’s financial year.

Martin continues to argue that the negative effects resulting from the rolling lockdowns were largely avoidable, and that government policy appears to have had “no real basis in common sense or science”. Indeed, the interim report seems to concern itself with clinical issues as much as it does with the hospitality industry, including citations from public health officials to back his anti-lockdown stance.

However, the chairman’s ire isn’t confined to government ministers. He has also taken aim at technical aspects of IFRS accounting standards, and there is a pithy critique of an article in Bloomberg Businessweek which raised questions over pay-rates for the group’s employees. In his riposte, Martin countered that Wetherspoon had “awarded bonuses and free shares to employees, equivalent to 55 per cent of its profits after tax, in the last 15 years”, and that approximately 16 per cent of the shares in issue are the result of free grants to employees – he may have a point.

FactSet consensus gives an IFRS earnings loss of 33.4p a share for the July year-end, before returning to a profit of 38.7p in FY2022.

The group has taken measures to insulate itself in the face of the enforced closures, so it exited the period with increased borrowings, reduced payables, and a stiffer cash buffer. Net debt as a proportion of cash profits is expected to remain at a multiple of around 3.5 for the foreseeable future, but everything rests on how rapidly – and the extent to which – punters return to hospitality venues.

The chairman will be hoping that the on-trade hasn’t been irreparably damaged by government policy, but an expanding premium over net assets suggests that the market has kept faith – even if we are now more cautious. Hold. 

Last IC View: Buy, 1,234p, 20 Jan 2021

JD WETHERSPOON (JDW)   
ORD PRICE:1,304pMARKET VALUE:£1.68bn
TOUCH:1,297-1,304p12-MONTH HIGH:1,453pLOW: 492p
DIVIDEND YIELD:NILPE RATIO:N/A
NET ASSET VALUE:284pNET DEBT:£1.4bn
Half-year to 24 JanTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
202093335.725.5nil
2021431-68.0-49.1nil
% change-54---
Ex-div:n/a   
Payment:n/a