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JD Wetherspoon - sales and profits up, net debt down

Half-year revenues of £916m were up 13.0% on a like-for-like basis, and were also up against pre-pandemic levels.

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Half-year revenues of £916m were up 13.0% on a like-for-like basis, and were also up against pre-pandemic levels.

Underlying operating profit was £37.4m, materially up from close to break-even in the first half of last year. This is because costs grew at a slower rate than revenues.

The group generated free cash flow of £166.0m against an outflow of £34.5m last year. Net debt fell from £920.4m to £743.9m.

Sales are up 14.9% for the first seven weeks of the second half of the financial year.

Wetherspoon noted sentiment that inflation is on the wane, which "will certainly be of great benefit, if correct". The group remains "cautiously optimistic".

No dividend was declared.

The shares were up 7.7% in early trading.

View the latest JD Wetherspoon share price and how to deal

Our view

Despite the ongoing pressures facing consumers and the hospitality industry, Wetherspoon's pubs are trading above pre-pandemic levels. As yet, there's no sign of this improvement tailing off. Profitability has not recovered to the same extent, no surprise given the relentless assault on input costs.

The group's been fighting hard to maintain its value offering. Prices were up around 4% last year and last we heard, it's hoping to keep price rises below inflation. But cost pressures across the industry remain challenging.

The budget credentials are intact for now, but we don't know how well customers will tolerate potentially significant price rises further down the line. If inflation does start to moderate this may not become an issue. The recent fall in UK gas prices certainly give some hope that Wetherspoon can reduce its energy bills once it exits from price fixes later this year. In any case, we think it's the mid-range hospitality sector that could suffer most in a downturn - JDW may just avoid the worst.

There's also breathing space to put through price increases and remain competitive. Whilst its traditional customer base may be particularly sensitive to price rises, it's encouraging to see a wider range of customers in its pubs. The pivot towards a younger and more family orientated demographic looks a good one, and Wetherspoon's strong brand perception holds it in good stead.

Wetherspoons is looking to sell over 30 pubs as it seeks to increase their average size, as well as the distance between them. It looks a positive move, and should help increase average footfall and profitability.

A return to cash generation has enabled further upgrades to the estate, and a decent reduction in net debt levels. We think that debt repayment will remain the priority for some time and don't see a return to cash rewards to shareholders being on the cards anytime soon, though some analysts disagree.

Wetherspoon is proud of its progress towards sustainability, but we still have question marks over the G in ESG (environmental, social and governance). The company doesn't agree with the guidance in the UK Corporate Governance Code on the length of board member tenure, board member independence, or the relative importance of shareholder engagement.

The market valuation also has some support from the company's net asset value, which is itself arguably understated given that the property portfolio has not been revalued since 1999.

Over the long term we remain positive that Wetherspoons can emerge from the current economic gloom stronger than before and increase its market share. That and it's improving financials have been recognised by a strong recovery in the valuation which is now above the long-term average. This increases the likelihood of volatility in the event of either earnings disappointments or movements in the stock market.

JD Wetherspoon key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Derren Nathan
Derren Nathan
Head of Equity Research

Derren leads our Equity Research team with more than 15 years of experience in his field. Thriving in a passionate environment, Derren finds motivation in intellectual challenges and exploring diverse ideas within his writing.

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Article history
Published: 24th March 2023