Stock of the day 10/09/2015 – JD Wetherspoon PLC

It looks like the beer’s gone flat at JD Wetherspoon – can its full year 2014/15 figures inspire some much-needed cheer on Friday?

Things were iffy for Wetherspoons from the off this year; after opening 2015 at £8.19, the stock soon fell to £7.80 after investors were unimpressed by the terms of the company’s agreement with Heineken following a dispute between the brewer and the pub brand, an agreement that could hamper its attempted expansion in Ireland. Wetherspoons then spiked to £8.39 in the middle of January (a price that remains its 2015 high) before falling back to £8 after a second quarter report that saw a slowdown in like-for-like sales across the Christmas/New Year’s period and a 0.9% drop in its operating margin to 7.3%.

By the start of February Wetherspoons had tumbled to £7.70, its worst price since the previous November. This low didn’t last long, and the stock’s price had improved somewhat by the middle of March as it crossed the £8.10 mark once again. However, yet another set of dismal results, this time from its half-year interim report, took another chunk off of the stock’s price. Despite a sales totalling £744 million, itself a 9% increase year-on-year, the company announced a 1% fall in first half profits to £37.5 million, the drop blamed upon ‘higher rates of pay for pub staff and higher utility costs’.


(Source: IT-Finance.com 10/09/2015)

Even the announcement that Wetherspoons was chasing the lucrative coffee market, with the company slashing the price of its Lavazza java to 99p with free refills, couldn’t soften the blow, and by the end of March the stock was trading at a 5 and a half month low of £7.48. Pre-UK election jitters across April and the start of May then saw the stock reach a 9 month low of £7.35, only to swiftly re-cross the £8 threshold due to a combination of strong Q3 results and the market-boosting Tory win. Those results contained a 1.7% jump in like-for-like sales for the quarter (and a 3.6% for the year so far), with the company reaffirming expectations of a 7.3% to 7.7% full year operating margin.

This news helped some stability return to the Wetherspoons stock, with the company ping-ponging between £7.90 and £8 for the rest of May and all of June. Yet the Greece-inspired chaos soon took its toll at the start of July, dragging the stock back down to £7.60; however, the real blow came with the company’s own fourth quarter update on July 15th. With its operating margin falling to 7% for the 11 weeks to July 12th, Wetherspoons lashed out at the Tories’ national living wage, claiming the increase (combined with pressures from cheap supermarket alcohol) would erode its earnings going forwards.

Understandably investors didn’t take well to the news, and the stock plummeted to a 12 month low of £6.87 by the middle of July. Wetherspoons actually managed to pick itself up and dust itself off quite convincingly soon after this 2015 nadir, its resilience over August seeing it hit £7.70 in early September. However, fears over its full year results on Friday has seen Wetherspoon quickly fall from that 2 month high, and the stock now sits at a current trading price of £7.18 (IT-Finance.com, 10/09/2015).

In terms of those full year figures, analysts expecting a drop in pre-tax profits from £79.4 million to £78 million, with most of the focus on the 0.8% year-on-year tumble in operating margin to 7.4%. Investors will be looking out for any scraps of good news, including an update on its cheap coffee/breakfast crusade and firmer figures on the cost of the national living wage increase.

JD Wetherspoon has a consensus rating of ‘Hold’ with an average target price of £7.64.