Wetherspoon – 2015-09-11 FY Analyst Meeting
11 September 2015
JD WETHERSPOON (JDW): 720p
FY Presentation – 52w to 26 July 2015:
Group continues to grow and invest despite uncertain short-term trading conditions…
| Year to end-July | PBT (£m) | EPS* (p) | PER (x) | DPS (p) | Yield (%) |
| 2014 (A) | 79.4 | 47.4 | 15.2 | 12.04 | 1.7 |
| 2015 (E) | 78.4 | 48.1 | 15.0 | 12.04 | 1.7 |
| 2016 (E) | 80.6 | 50.6 | 14.2 | 12.44 | 1.7 |
*Normalised, Source: Company & Broker Estimates, 2015 upgrades likely
FY Presentation: 52w to 26 July 2015:
JD Wetherspoon has hosted a presentation on its full year numbers for the 52w to 26 July 2015 and our additional comments thereon are set out below (see earlier email for more detail):
Trading:
- CEO John Hutson said that trade for the wider pub industry, including JDW, has slowed since October 2014.
- Its activity in the breakfast trade is seen as an investment for the future, rather than a present driver of profitability.
- Its four pubs in the Republic of Ireland have been performing well, although it is still too early to value them on a cash basis (instead, management are looking at operational KPIs and sales growth). JDW is investing in infrastructure in order to continue expansion here.
- Trading for the first 6wks of the current year are +1.4% and recent trends are shown below:
Tab.1. Recent Sales Trends:
| Financial Period | LfL Sales (%) |
| Full year 2008/09 | +1.2 |
| Full year 2009/10 | +0.1 |
| Full year 2010/11 | +2.1 |
| Q1 2011/12 | +1.1 |
| H1 | +2.1 |
| Q3 | +2.0 |
| Full year 2011/12 | +3.2 |
| Q1 2012/13 | +7.1 |
| H1 | +6.9 |
| Q3 | +6.3 |
| Full year 2012/13 | +5.3 |
| Q1 | +3.7 |
| Q2 (first 12w) | +6.7 |
| H1 | +5.2 |
| Q3 | +6.2 |
| Full year 2013/14 | +5.5 |
| First 6w 2014/15 | +6.3 |
| Q1 | +6.3 |
| Q2 (12w) | +2.8 |
| H1 | +4.5 |
| First 6wks H2 | +1.6 |
| 13wks to 26 April | +1.7 |
| 39wks to 26 April | +3.6 |
| 11wks to 12 July | +2.9 |
| Full year 2014/15 | +3.3 |
| 6w 2015/16 | +1.4 |
Source: Company Reports
More on Trading:
- Hutson believes the firm is ahead of the curve with regards to the National Living Wage increase in April 2016. Wetherspoon could pay for a substantial chunk of wage rises to 2020 out of their bonus pot for employees (2015: £30.6m).
- However, as the pub group believes these bonuses are partly responsible for record high levels of staff retention and superior customer service, they would rather retain the bonuses.
- JD Wetherspoon expects 2016 LfL sales to be somewhere between 0-2%, coming from a mix of volume and price.
Balance Sheet, Debt & Other:
- The company opened 30 new pubs during the year and exited from 6, adding that returns on new pubs are the same or better than average. Some 80% of its new sites were freehold.
- Year end debt (including bank borrowings and finance leases, but excluding derivatives) was £601.1m versus £556.6m last year, while the group’s proportion of freeholds in its estate has risen to 49.1% of its 951 pubs (2014: 47% of 927).
Conclusion:
- JDW is unflustered by trickier trading conditions since October of last year and continues to invest significantly in its proposition. Evidence of the success of this investment can be seen by the operator’s best-in-class levels of brand recognition in the UK, even if returns on capital may take years to filter through.
- The group were keen to add that its 0-2% LfL sales forecast was just that – a forecast, at the mercy of the wider trading environment.
- The market has so far reacted benignly to JDW’s prelims following its share price correction earlier in the week. Many will be thinking that these results are not as bad as they could have been.
Langton View: JD Wetherspoon has flagged that, while trading has become more competitive over the past year, the group has the brand presence and financial firepower to continue profitably growing its footprint and improving its existing estate. Staff rooms have been improved, beer gardens redone and more accommodation has been added.
The group has manageable debt levels and a solid expansion plan, backed by a strong focus on cash generation. It is this dependable level of free cash flow (2015: £109.7m) which allows it to invest in its brand and properties and ensure its long-term trading prospects.
Margins may stay under pressure as the group’s investment in grabbing market share of the breakfast trade continues. The introduction of the New Living Wage may also hurt margins, however JDW is better placed for this than many of its competitors. Furthermore those consumers benefitting from a higher hourly wage might even find themselves spending the extra in a Wetherspoon pub.
For those with a long-term investment horizon, we continue to be of the view that JD Wetherspoon is a good investment. It will (touch wood) still be here in five years’ time, and will in all likelihood be a materially larger company. Share price weakness should be viewed as a buying opportunity.