Could FTSE 250 incumbent J D Wetherspoon (LSE: JDW) benefit from the upcoming UK budget?
Let’s dig deeper into possible implications of the budget, and the Wetherspoon investment case.
More money to spend in the pub?
Many economic commentators reckon tax cuts are on the way. This could be good news for consumer spending as we have more cash in our pocket. This could boost spending across non-essentials including going out, and leisure activities such as the pub.
However, there are still other challenges to navigate in the long run. These include higher interest and mortgage rates, as well as energy prices, but it could be a start towards stimulating the economy.
So what about Wetherspoon shares? The firm is the largest pub group in the UK, known for its value to customers.
The shares have been on a great run over the past 12 months. They’re up 28% from 590p at this time last year, to current levels of 760p.
A combination of a strategic review and excellent performance since the pandemic hurt the business and stock has made Wetherspoon shares look like a favourable investment once more, in my opinion.
My investment case
From a bearish view, continued inflationary pressures could present problems for the business. Higher costs could hurt the firm’s bottom line, which underpin returns and growth plans. I’ll be keeping an eye on trading updates on this front moving forward.
Another economic factor that could impact Wetherspoon shares, as well as performance and returns, is higher staffing expenses. With the national living wage set to increase, this could present higher costs for the business as well.
Finally, Wetherspoon’s owns many of its buildings, but those with leases could present an issue from a cost perspective. The trend of higher costs seems to be prevalent throughout the investment case, and something the whole industry is wrangling with.
Moving on to the bull case, I’m buoyed by Wetherspoon’s ability to navigate the recent economic turbulence. Known for its value to customers, it has performed well according to recent updates. In the past six months, sales have increased 10% compared to the same period last year. This shows a level of resilience, in my view.
Furthermore, as mentioned earlier, a change in tack around the number of pubs it runs has helped improve the shape of the business, as well as its balance sheet. It has been closing down locations, especially those it has lease commitments on, and focusing efforts on those it owns. It can make more money from these. This change in strategy seems to be serving it well based on recent performance and share price ascent.
My verdict
Even without the potential for the upcoming budget potentially boosting Wetherspoon shares, the firm has been on a good run and looks to have a great market presence and share.
The shares look attractive on a price-to-earnings ratio of just eight. Recent performance has shown its resilience, so I can’t help wondering how well it could do once volatility subsides.
Taking everything into account, there’s definitely an opportunity to buy some shares with a view to potential returns and growth. I’d be willing to buy some shares when I next have some cash to spare!
