Leading analyst Jamie Rollo looks ahead to JD Wetherspoon’s Q1 interim management statement on 6 November, predicting a “solid” trading update “with few surprises”.
Rollo, of Morgan Stanley, said he predicts like-for-like growth to slow somewhat to 3%, following +3.6% growth in the first six weeks, “which was boosted by the warm weather”.
“Any signs of further progress on the EBIT margin would be a positive. We think the 13x 2014e P/E multiple already reflects its significant attractions.”
He added: “Comps are tough for the first three quarters of 2014, as JDW saw +6.7% in the same period last year, and while growth will likely be slower this year, we expect underlying trading to be robust, with two-year growth similar to 2013 levels, forecasting +2.5% like-for-like sales for FY14. This is in line with management guidance at the FY results that the +2.5% level of the most recent fortnight was likely more indicative of the year as a whole.”
Rollo said he expected broadly flat operating margin in FY2014.
“EBIT margins have declined in 19 out of the last 21 years and this continued in 2013, when the margin was 8.7%, representing a 28bps decline on FY12. However, trends improved throughout the year, with H2 2013 seeing operating margins improve by 41bps to 9%, the first sign of improvement for over three years.
“We forecast broadly flat operating margins in FY14, which management seemed confident of at the FY results. We note, however, that JDW faces c£4m of external cost inflation in the year, from increasing rates and the new Machine Gaming Duty (c30bps to margin), and with general cost inflation c3%, 2.5% like-for-like growth may not be enough to hold margins flat.
“We estimate that every 50bps to EBIT margins is 8% to EPS. We will be looking out for an update on unit growth.”
Rollo pointed out that Wetherspoons has opened an average of 25 pubs every year for the last 10 years. He added: “However, it tends to have quite a lumpy opening profile, with periods of accelerated openings (taking advantage of lower property prices or competitor withdrawals) being offset by periods of slower openings (usually due to duty or other government issues).
“Company guidance is to open c30 pubs this year, in line with FY13, but it has said previously that it could accelerate this back to the level of 2010-11 when
it opened c50 pubs per annum if conditions improve. We estimate that every 10 new pubs are worth 1.2% to EPS.”
