Are JD Wetherspoon’s shares poised to benefit from the Covid recovery?

Could a reopening of the UK economy and a quick rollout of vaccines mean a massive boost for Wetherspoons shares? Andy Ross digs deeper.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

There can be no doubt an economic recovery will come, once Covid vaccines are fully rolled out to the most vulnerable groups. JD Wetherspoon (LSE: JDW) shares could be well positioned to rise in that situation, I feel.

I much prefer them to the more indebted Marston’s, which has recently seen a bidder walk away from a takeover. 

Why Wetherspoons’ shares could recover

The pub group, founded and still run by vocal Brexiteer Tim Martin, has been able to raise money from shareholders on several occasions. This has helped it through the pandemic to date. The most recent raising was for £93.7m. Last year, it raised £141m.

The latest cash will help strengthen the balance sheet. Bullishly, the group has also said it wants to buy attractively-priced properties. Management thinks this will help it emerge stronger from the pandemic. 

On the downside, the pandemic has pushed up debts, net debt including bank borrowings and finance leases was £836m in April 2020. In the latest annual report, the company also said the year-end net-debt-to-EBITDA ratio was 9.48 times, compared to 3.36 times in 2019.

But it does have cash available and I expect the profit and loss to look much stronger once sales lift again.

Experienced management team

I think another thing going for the business is that the managers are very experienced and have seen plenty of ups and downs in the economy. Tim Martin has been chairman since 1983. His CEO John Hutson has been on the board since 1996, and his finance director since 2014. This strikes me as a positive sign that the management team is committed, know their industry and work well together.

They probably think longer term, especially with the founder still at the helm and being the largest shareholder in the group. 

My best guess is that once the pandemic subsides and we learn to live with it, Wetherspoons will return to being a profitable, cash generative business, although there’s no guarantee that social life will go back to what it was. The firm is currently a much more indebted business than I would like too, but this is beyond its control. Also, if Martin sells down his holding in the group in the future that could spook investors and push down the share price. So there are a few issues facing the pub group. 

Another share that could bounce back

Rank Group (LSE: RNK) the owner of Mecca bingo and Grosvenor Casinos is another leisure business that has felt the impact of lockdowns. The pandemic has not been kind to the share price, which had been rising before the stock market tumbled in March 2020.

The group operates in the UK and Spain and so the vaccine rollout in the former may help the shares in the not-too-distant future. Especially if vulnerable groups can return to bingo halls.

The group also has proprietary technology, which I think is currently not something most investors are aware of. It has a commercial partnership with Bauer to use the platform. Growth in this area could possibly boost the shares in the future. But I’ll also be keeping an eye out for increased debt as a result of sites being closed, as this may drag on returns for years to come. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Andy Ross owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Bargain buy? The Unilever share price just hit a 52-week low!

Earlier today, the Unilever share price dropped to a one-year low. The shares are now bouncing back but nowhere near…

Read more »

pensive bearded business man sitting on chair looking out of the window
Investing Articles

The Dr. Martens share price just crashed 25%! Time to buy?

The Dr. Martens share price has plummeted. Is this an opportunity for our writer to add the stock to his…

Read more »

Mindful young woman breathing out with closed eyes, calming down in stressful situation, working on computer in modern kitchen.
Investing Articles

Dr. Martens: is this collapsing FTSE 250 stock now a contrarian buy?

Shares of this well-known FTSE 250 firm just dropped to a record low following a poorly received report. Is this…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Why I’d start putting money into dirt cheap UK shares this December

Our writer isn't waiting until the New Year to consider opportunities for his share portfolio. Here are some reasons why…

Read more »

Light trails from traffic moving down The Mound in central Edinburgh, Scotland during December
Investing Articles

What are the best shares to buy in December for 2024?

Christopher Ruane explains why he's not waiting until 2024 to make moves in the stock market and would be happy…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

£5k of savings? I’d target income of £7,544 a year by investing in just 3 dividend shares

I'm building a portfolio of dividend shares to give me a passive income in retirement. It's astonishing how the rewards…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

One dividend giant I’d buy over Aviva shares

Aviva shares still look a good buy to me, but I think right now another high-yielding dividend stock looks even…

Read more »

Newspaper and direction sign with investment options
Investing Articles

I would grab these cheap shares before prices rise again

With the UK market in a slump, this Fool UK contributor is looking at buying up some cheap shares before…

Read more »