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When JD Wetherspoon (LSE:JDW) floated in October 1992, reporting annual sales of around £30m. Today, it is a member of FTSE 250for FY24 (52 weeks ending 28 July 2024) profit of £2.04bn.
Tim Martin, the group’s founder, owns nearly 25% of the shares. Having started in 1979 with one pub in London, he is now responsible for over 800 of them, across the UK and Ireland.
Yet despite this success, he often seems unhappy.
Doom and gloom
Browsing through the winter/spring issue of Wetherspoon’s in-house magazine confirms this.
On page four, Martin describes the government’s plans for pubs as “daft“. Understandably, he doesn’t like the sound of reports (now denied) suggesting that opening times should be further restricted.
He also expresses his concern about the idea gained by academics from Cambridge University to stop drinking. Reducing the size of pint glasses by about a third will fail, it will simply encourage more drinking at home, he says.
But to Martin’s greatest chagrin it seems that supermarkets are paying “almost no VAT” about the sale of food. Conversely, pubs must add 20% to bills. He also focuses on other things”large pub companies” who says, they are silent about the so-called “tax inequality“.
And if this is not sad enough, the chairman of the pub chain “concerns about the possibility of another shutdown“.
Let’s raise a glass
But ‘Spoons’ has a lot to celebrate.
Its FY24 results revealed a 5.7% increase in profit and a 74% increase in adjusted pre-tax profit, compared to FY23. It also restored its quota, which was suspended during the violence.
Earnings per share rose 77%, to 46.8p.
In its latest trading update – for the 14 weeks to 3 November 2024 – it reported a 5.9% increase in like-for-like sales, compared to the same period in 2023.
And yet its share price seems to be moving in the opposite direction. It has decreased by 27% since January 2024.
This means that it is currently trading at a historical price-to-earnings ratio of 12.6. Pre-Covid it was over 20 years. Now would be a good time for me to invest.
What should I do?
However, the government’s decision to increase the level of employer’s national insurance contributions has major implications for business.
It is expected to add another £60m to its annual costs. And given that its pre-tax profit for FY24 was £74m, this is a huge hit to its bottom line.
No wonder the Wetherspoon boss is unhappy with the decision.
In my opinion, the pub chain – famous for its cheap beer and unique carpets – is a British icon. But this does not mean that I want to invest. I think the national insurance hit is too big to ignore.
And I noticed that the price of the company started to decrease before the budget. It fell by 8% in the week leading up to the Chancellor’s statement and, since then, has fallen further by 9%.
This suggests a loss of investor confidence even before the full implications of the government’s new tax policies are known. It seems to me that the stock is out of favor for no apparent reason.
It will take something to change for the feelings to heal. And at the risk of sounding like Tim Martin, I don’t know what this could be.
For these reasons, I will not buy.
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