Time was when, regular as clockwork, JD Wetherspoon had to issue a profit warning every other summer. Why? Because the company’s insistence on keeping its pubs as television-free zones meant that every time the World Cup or European Championships came around drinkers would decamp to the nearest pub with a big screen to watch England matches (Dominic Walsh writes).
Tim Martin, the company’s founder and chairman, may be stubbornly immovable on issues such as Brexit, taxes and haircuts, but throwing good money after bad has never been part of his psyche and he has long since changed his tune and allowed TVs into his pubs.
With the British Beer & Pub Association predicting that fans will have quaffed an extra ten million pints during last night’s semi-final on top of the additional 30 million sold during England’s previous matches, Mr Martin would have been crying into his pint of Doom Bar if his TV ban had still been in place. As it is, the extra takings at Wetherspoon’s pubs (though perhaps not at the five in the Republic of Ireland) have enabled the company to continue its recent strong trading, with like-for-like sales up 5.2 per cent in the ten weeks to last Sunday.
That better-than-expected performance means like-for-like sales for the first 49 weeks of the financial year are up by the same percentage — 5.2 per cent — although total sales are up by a slightly lower 4.2 per cent as a result of the closure during the year so far of 23 pubs as the company continued to offload underperforming pubs in towns where it opened too many when times were better. The disposals will spark a £9 million exceptional loss for the full year.
Wetherspoon has also benefited from the summer heatwave, although its preponderance of high street sites means it has not been able to cash in nearly as much as rivals with beer gardens and riverside locations such as Young’s and Fuller’s. Yesterday, he estimated the combined impact of the weather and the football on its like-for-like sales at 1 to 1.5 per cent in the quarter.
While current trading is good, the company remains cautious over costs, acknowledging that margins could fall next year while interest charges on its borrowings will rise. It has reiterated that it needs to achieve like-for-like sales growth of 3 to 4 per cent for profits to stand still next year as it tries to offset the rising cost of utilities, wages, products, business rates and, potentially, excise duty. Not easy in a business which seeks to price its beers and meals below the competition.
Low prices to the customer have formed the bedrock of the Wetherspoon formula since Mr Martin took over a pub in Muswell Hill in north London in 1979. Cheap ales and lagers have long since been supplemented by coffee, curries and breakfasts and as the company has grown — to 44 pubs at flotation in 1992 and 881 pubs today — so its extra buying power has been used to the benefit of customers.
Never one for getting too carried away, Mr Martin, who owns just above 30 per cent of the company, declared Wetherspoon to be “in a sound financial position”, with net debt at the year end expected to be £740 million, partly on the back of £51.6 million of share buybacks.
Never one to hold back from giving his views on Brexit, the mullet-haired Wetherspoon boss advised the prime minister to stop focusing her negotiation efforts on securing a trade deal with the European Union and instead “embrace free trade”. As though to prove his point, he said his pubs had started replacing champagne with sparkling wine from the UK and Australia.
ADVICE Buy
WHY The shares, up 43p to £12.87, may not be cheap but betting against Tim Martin rarely makes sense
Newriver Reit
Newriver Reit went shopping yesterday and picked up the Hollywood retail & leisure park in Barrow-in-Furness for £15.3 million. It was a modest deal, little more than 1 per cent of its entire portfolio, but typical of Newriver, which specialises in no-frills community-focused shopping centres for locals seeking value (Patrick Hosking writes).
The Barrow retail park has no grand department store as its incoming anchor tenant but Aldi, the discount supermarket group. There are no fancy fashion shops but plenty of strong retailers catering for price-conscious customers, such as TK Maxx, Currys and Dunelm.
The average rent in the park is just £11.36 per square foot, which is affordable for most. Yet the purchase gives Newriver an attractive net initial yield of 8.7 per cent and the economic prospects for Barrow have just picked up a little after the government’s recommitment to the BAE Systems shipyard.
Newriver has grown from a £25 million tiddler in 2009 to a £1.4 billion midweight and member of the FTSE 250 through a string of capital-raisings and acquisitions. It owns 34 shopping centres and argues it is hedged against online retailers because its tenants typically sell low value, high volume goods.
Retail property Reits have been clobbered in the past few months. The drip of bad news has soured sentiment and Newriver has not escaped the general selldown. Its shares used to trade at a premium to net assets and only last year it raised £225 million in new equity at a 15 per cent premium. Closing yesterday at 268.5p, they now languish at an 8 per cent discount.
Yet Newriver has some defensive qualities denied to its peers, including its predilection for value retailers. The balance sheet is relatively conservative after it raised £300 million in ten-year debt with an interest rate of 3.5 per cent last year. Gearing at the year end was 28 per cent.
There are risks. The management have embarked on a blizzard of deals that make you wonder how much attention they can give to all the details. A strategy of diversifying into pubs is not an assured success. But the shares are now looking unloved and cheap.
ADVICE Buy
WHY It has been excessively hit by sector-wide sell-off
