The JD Wetherspoon (LSE: JDW) share price and business have been resilient. And the brand is strong and well-loved by many.
The company survived a mauling over the past few years. I’m thinking of things like the pandemic lockdowns, supply-chain issues, rampant cost inflation and customers hammered by the cost-of-living crisis.
On top of that, the pub industry has been in steady decline for decades. And Wetherspoon’s chairman, Tim Martin, often points out why he thinks the playing field is bumpy.
Ongoing risks and uncertainties
Popular themes for Martin include issues relating to taxation. And he’s been keen to mention different tax treatments between sectors, such as supermarkets versus pubs.
But this year’s full-year results report released on 6 October talks about taxation of pubs in Scotland. And how business rates there have “transmogrified to a sales tax”.
Martin provides some snapshot figures in the report to demonstrate how Wetherspoon appears to pay more taxes in that way than other chains. So it looks at first glance like a tax penalising success – my words, not Martin’s.
For me, there’s no political point here. But Martin focuses on some important factors relating to the business.
In any service operation such as Wetherspoon, taxation and government policies are big issues and risks for investors to be aware of.
Recovering well
The company raised £229m issuing new shares to survive the pandemic. But since those dark days, the business has been recovering well – despite everything that’s happened in the economy since.
In the trading year to 30 July, like-for-like sales rose by almost 13%. And profit before tax moved from a loss of just over £30m the prior year to a positive figure just under £43m.
Meanwhile, diluted earnings came in at 26.4p per share after a loss of 19.6p the year before. And all these figures suggest a strong bounce-back for the business, although dividends have yet to be restored.
So why is Wetherspoons so successful despite the difficult odds in the sector?
I remember Virgin billionaire entrepreneur, Richard Branson, once talking about the secret of his success with business enterprises. In essence he said he aims to find a product or service in demand and then to provide it better and cheaper than the competition.
In other words, it’s all about the customer’s perception of value and building a brand that customers feel good about supporting.
And I think Wetherspoon operates in a similar way. And that could be the secret of its success and resilience.
A fair valuation
With the share price near 670p, the forward-looking earnings multiple is just below 17 for the current trading year to July 2024. And City analysts have pencilled in a robust double-digit percentage earnings advance for the year.
On balance, and mindful of the risks, I see the valuation as fair. And I’m optimistic that recovery in the business can continue over the coming years.
So I’d be inclined to carry out deeper research with a view to making the stock a long-term holding for its ongoing turnaround and growth potential.
