Wetherspoons begins recovery from Budget hangover
Already under pressure, shares in the budget pub chain lurched lower again following measures announced in last week’s Budget. Graeme Evans runs through a new update.
6th November 2024 15:50
The post-Budget hangover for shares of Wetherspoon (J D) (LSE:JDW) lifted a little today as investors returned to the pub chain on the back of record quarterly trading figures.
Like-for-like revenues rose 5.9% in the three months to Sunday, up from the rate of 4.9% seen after nine weeks and ahead of City assumptions for annual growth of 4%.
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Chair Tim Martin remains confident of a “reasonable outcome” for the financial year to July, but said forecasting has been made harder by the extent of ongoing cost pressures.
He said taxes and business costs are expected to increase by about £60 million in the 2025 calendar year, including an estimated 67% increase in national insurance (NI) contributions.
Martin added: “Cost inflation, which had jumped to elevated levels in 2022, slowly abated in the following two years, but has now jumped substantially again following the Budget.
“All hospitality businesses, we believe, plan to increase prices, as a result. Wetherspoon will, as always, make every attempt to stay as competitive as possible.”
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The company’s shares today lifted 25.5p to 623.5p, still short of the 648.5p seen before last week’s Budget and the 830p seen in January.
Shore Capital expects price rises across the industry as operators offset a national insurance rise that it estimates is the equivalent to a further 5p on a pint.
It added: “The unknown is at what point will the consumer become resistant to continued price increases, although we suspect Wetherspoon has more room than most.”
Shore’s current forecasts see the chain’s 2025 profit figure increasing by £10 million to £84 million, which is based on 4% like-for-like sales growth.
It said: “The NI measures could be an additional £10 million of costs, although with trading year-to-date above full-year assumptions and potential mitigation measures (mainly price), we see modest downside risk to our full-year estimates at this stage.”
The City firm has a Hold recommendation on the stock, noting that Wetherspoon trades at a premium to its peers.
The franchisees of Domino's Pizza Group (LSE:DOM) UK are also facing Budget headwinds, although they are tackling them against the backdrop of recent trading momentum.
The company’s FTSE 250-listed shares today rose 2p to 323p after it said that system sales growth rallied to 3% in the third quarter to 29 September, from 0.2% at the half-year stage. Total orders of 17.4 million were 3.5% higher than a year earlier.
The positive trends have continued into the fourth quarter, with total orders up 5.8% on a comparable basis in the first five weeks of the period.
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Chief executive Andrew Rennie said: “We’re focused on growing our like-for-like sales in a sustainable way, primarily driven by order growth and not pricing, meaning lower ticket prices for customers and sustainable like-for-like sales growth driven by volume.”
The shares are up 14% since August, increasing the valuation multiple to 16.4 times forecast 2024 earnings compared with the company’s 10-year average of 20 times.
City firm Peel Hunt, which has a price target of 425p, said: “We expect the rating to continue to improve as like-for-like sales build in the fourth quarter and 2025, driven by the initiatives to grow average order frequency.”
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