The J D Wetherspoon (LSE: JDW) share price had a good run from the start of the month into today’s annual results. The shares are currently modestly down on yesterday’s close — a bit of profit-taking, I’d say — after the FTSE 250 pubs group reported record sales, profit and earnings per share (EPS) before exceptional items.
As has become customary, Brexiteer boss Tim Martin introduced today’s report with a forthright argument that a no-deal Brexit would reduce shop and pub prices and be good for his customers, and the UK generally. However, City analysts are as divided on the prospects for Wetherspoons as the population is on the merits of withdrawal from the EU. According to financial data website Digital Look, five analysts rate the stock a ‘buy’ and five a ‘sell’, with only two taking a neutral position.
My view is that whatever the outcome and short-term effects of Brexit, Wetherspoons will deal with it and continue to thrive over the long term. Indeed, it’s a stock I’d happily buy and hold for the next 25 years.
Force of nature
Prospective investors would do well to take a look at the table of annual summary accounts since the incorporation of Wetherspoons in 1983. The table is in today’s results and is accompanied by a note that since the company’s flotation in 1992, EPS has increased by an average of 15.4% a year and free cash flow per share by an average of 15.5%.
This is a terrific long-term performance and, as the company has said, it’s been driven not by ‘big ideas’ or grand strategies, but simply by a focus on improving as many areas of the business as possible on a week-to-week basis. As a result of its relentless focus on price leadership and customer satisfaction, Spoons has become a veritable force of nature in the value pub market — a clear ‘category killer’, as one analyst has put it.
Good value for an outstanding business
Today’s results showed revenue of £1.7bn for its financial year ended 29 July, 2% ahead of last year. Profit before tax and exceptional items rose 4.3% to £107.2m and EPS advanced 14.5% to 79.2p. At a current share price of 1,250p, the price-to-earnings (P/E) ratio is 15.8, which I consider good value for an outstanding business.
The board maintained the annual dividend at 12p, as it has for a good number of years. The low payout ratio (just 15% of EPS) and yield of less than 1% mean Wetherspoons isn’t a stock for investors seeking a high income. Capital growth is the name of the game here, with share buybacks resulting in buy-and-hold investors owning an increasingly large percentage of an increasingly valuable business. For example, purely because of buybacks, the chairman’s stake in the company has increased from 21.2% to 31.9% over the last 12 years.
Looking ahead, following 5% growth in like-for-like sales for the year to July, the company said this had advanced to 5.5% for the six weeks to 9 September. It reckons it needs about 4% for the current year to match last year’s record profits. With management having a habit of under-promising and over-delivering, fiscal 2019 is already shaping up to be another record year. And I’m expecting many more over the coming decades.
