What to expect from JD Wetherspoon Q1 results
Wetherspoons shares have rallied on news that we could be close to getting our first COVID-19 vaccine, but the immediate outlook still looks grim as pubs close for a second lockdown.
- Wetherspoons reopened its pubs in July but warned tough new rules had kept sales well below normal levels
- Wetherspoons pubs have had to close once again after the country entered a second lockdown, which will weigh on the outlook for the second quarter
- Wetherspoons shares have fallen 30% since the start of 2020, underperforming the travel and leisure industry but outperforming other pub stocks
- Wetherspoons shares are among the raft of stocks to rally on the news on Monday that we could be close to having a COVID-19 vaccine, with the pub stock gaining over 26% since the news broke
When will Wetherspoons release its first-quarter results?
Pub chain JD Wetherspoon is scheduled to publish its first quarter (Q1) results on the morning of Wednesday 11 November. This will cover the three months to late October.
What to expect from Wetherspoon’s results
Wetherspoons revealed last month that the initial three-month lockdown that was implemented in March was catastrophic for business. The company sank to a £34.1 million pre-tax loss in the year to 26 July from a £104.5 million profit the year before – recording its first loss since 1984.
The pub industry was hoping to be given the chance to recover after pubs reopened on 4 July, albeit slowly because of the tough rules imposed on the hospitality sector, like the 10pm curfew, social distancing and the need to supply table service. Wetherspoons said like-for-like (LfL) sales were down 15% in the first 11 weeks since reopening and said that business had slowed even more after the curfew and other regulations were introduced.
Hopes of staging a recovery anytime soon have now been dashed after the country entered its second national lockdown on 5 November, forcing pubs and restaurants to close yet again.
Wetherspoons was open for business during the entirety of Q1 and had to close again early in Q2. But the numbers will still be grim for Q1, as will the outlook for Q2. This will push the company’s hopes for recovery into 2021.
Wetherspoons has had to take drastic action in response to the crisis. Earlier this year it started to slash costs, cancelled its dividend, and raised cash from investors and elsewhere. The good news is that the company looks able to weather the storm even if it continues for a while. Net debt stood at £817 million on July 26, a staggering 9.5x Earnings before interest, tax, depreciation and amortisation (Ebitda), compared to a target of below 3.5x.
However, it has already secured waivers from its lenders for financial covenant tests until October 2021 – giving it some vital breathing room. It will burn through cash while it remains closed, but it has nearly £175 million in cash and equivalents and access to more debt should it need it. For perspective, it recorded free cash outflow of £58.9 million in the last financial year as a result of the lockdown, compared to free cashflow of £97 million the year before.
Investors should expect Wetherspoons, led by its founder and chairman Tim Martin, to continue to voice opposition to the latest lockdown. The company has been highly critical of the UK government’s treatment of the pub industry during the crisis, claiming it is not necessary to close the industry to supress the virus and that new regulations depress sales while substantially increasing costs. Instead, it argues the country should adopt a model ‘which emphasises social distancing, hand-washing and trusting the people, rather than coercive measures such as lockdowns, curfews and fines.’
‘As a result of recent changes in regulations, the outlook for pubs over the remainder of the current financial year is even more unpredictable than hitherto,’ the company said last month. ‘The company and the entire hospitality industry need a more sensible and consistent regulatory framework in which to operate - the current environment of lockdowns, curfews and constantly changing regulations and announcements threatens not only pub companies, but the entire economy.’
There are no signs that the government’s attitude towards pubs will change. They will be closed again if there is another lockdown in the future, and the new rules governing how they operate are likely to remain in place when pubs reopen again. Currently, analysts expect Wetherspoons to return to profit in the current financial year but the clouded outlook going forward means this is highly uncertain.
How to trade the Wetherspoons share price
Wetherspoons shares have lost 30% of their value since the start of 2020, underperforming compared to the 25% fall in the FTSE 350 Travel & Leisure Index. However, whilst it has performed poorly compared to other leisure stocks, it has proven to be one of the more resilient pub stocks considering peers like Marston's and Mitchells & Butlers have both fallen 50% this year.
Brokers are currently bullish on Wetherspoons and think the stock is undervalued following the heavy sell off this year, possibly because the company boasts strong recovery prospects. The 12 brokers that currently cover the pub chain, according to Reuters, currently have a Buy recommendation on the stock, although the average target price of 1003.64 is lower than the current share price.
|Number of brokers|
|Average target price||1003.64p|
Results are always a trigger moment for shares, and it will be no different for Wetherspoons. You can speculate as to whether you think Wetherspoon shares will rise and buy (go long) or, if you think they will fall, sell (go short) using either CFDs or spread bets.
- Create an IG trading account or open My IG to your existing account
- Enter ‘JD Wetherspoon’ or its ticker, ‘JDW.L’ in the search bar and select it
- Choose your position size
- Click on ‘buy’ or ‘sell’ in the deal ticket
- Confirm the trade
If you want to try your trading strategy risk-free then why not try an IG demo account? Plus, you can look to invest in Wetherspoon shares using an IG share dealing account, whereby you can buy the shares outright from just £3.
Where next for Wetherspoons shares?
Wetherspoons has been hit hard by the pandemic this year and it is not clear when it will be able to stage a proper recovery. The question comes down to when this recovery will happen, considering Wetherspoons looks capable of surviving a prolonged struggle and is likely to be able to quickly return to normal once a solution to the virus has been found.
The fact Wetherspoons and other pub stocks found higher ground on Monday, with the stock rallying almost 20% on the day, after Pfizer’s announcement that its vaccine candidate has proven 90% effective in its Phase 3 trial shows investors believe the pub industry will bounce back strongly once the pandemic is over. They were joined by a raft of leisure and travel companies that have come back into play as investors look for stocks that could stage the greatest recovery once a vaccine is rolled out.
Wetherspoons shares are now climbing higher as a result, although they could remain volatile over the short-term. Any successful vaccine will take time to roll-out and, for now, we still live in a world of lockdowns and tighter restrictions, and it is likely to remain that way for some time.
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
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