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Wetherspoon’s share price jumps despite dividend cancellation

CMC Markets

12-5-2020 10:04:57Wetherspoon’s share price has jumped this morning after the company posted its first-half numbers.

The pub group had a respectable performance for the six-month period. Before exceptional items, revenue increased by 4.9% to £933 million, and pre-tax profit jumped by 15.2% to £57.9 million. It is encouraging to see that profit growth outstripped revenue growth. Free cash flow per share fell by 31.2% to 46.7p – this is worrying as the health emergency is likely to put huge pressure on cash flow.

Dividend cancelled

The Covid-19 crisis has hit the pub trade hard. In the week until 15 March, the group registered a 4.5% fall in sales, and since the government recommended that people carry out social distancing, sales have fallen "significantly". On account of the huge uncertainty, the firm cancelled its interim dividend and said it is impossible to give a guidance. The move echoes that of Mitchells and Butlers. Not paying out a dividend is a sensible move because in these uncertain times, cash is king. Weatherspoon confirmed it has "sufficient" liquidity, and that should reassure the market.

Wetherspoon's share price up 50% in 2019

Wetherspoon’s share price gained 50% in 2019 as the company performed well. The group posted a 7.4% increase in revenue for the year, though pre-tax profit slipped by 4% to £102.5 million. Higher costs, such as wages, were cited for the dip in earnings.

Wetherspoon's price themselves at the lower end of the market when it comes to drinks and food, and that tactic has paid off as the group keeps expanding at a time when smaller pubs are finding trading tough. The pub chain has tapped into the craft beer craze as it offers a number of bespoke beers and ciders - so it is keeping up with the latest trends. In addition to that, it also offers a broad variety of food as well as coffee – both have become more popular in recent years. Wetherspoon's casts a wider net than many of its competitors in terms of customer base, and that is a large reason for its success.

Social distancing puts pressure on pubs

Wetherspoon’s share price has tumbled in excess of 55% year-to-date. The Covid-19 crisis has clobbered the stock as social distancing has turned pubs across the country into ghost towns. The fear that the UK could be plagued by the coronavirus for months has hammered the Wetherspoon’s share price, as traders fear the company could endure a prolonged period of extremely low business activity.

The government have scrapped business rates for firms like Wetherspoon's, and lending schemes have been announced too, so that should take some pressure off the group, but until normal service resumes, the Wetherspoon's share price is likely to remain under pressure.

 


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