Proactive Investors - JD Wetherspoon PLC (LON:JDW), the budget pub company, will need to be reliant on pricing and volume recovery if it wants to return to pre-tax profits of £100 million by 2026, analysts at Liberum believe.
Welcoming the hospitality firm’s full-year results, which saw revenues jump by 10.6% to £1.9 billion and a return to a pre-tax profit, analysts at the investment bank noted that despite guidance being edged higher, there are still several headwinds facing the firm.
Inflation continues to be the biggest setback for the company due to its low operating margin, which in 2023 was at 5.6%, and one way the group has combatted this is by growing food sales, with the category accounting for 39% of total sales in 2023, compared to 18% in 2000.
Other aspects Liberum believes Wetherspoon will need to traverse include disposals of sites, property impairments, restructured interest hedging and updated energy guidance.
Wetherspoon placed 11 additional sites on the market following the sale or closure of 31 venues over the most recent financial year, with the group suffering £38.2 million in impairments because the properties had not been revalued since 1999.
However, according to Wetherspoon’s trading update, it believes “perhaps the biggest threat to the hospitality industry is the possibility of further lockdowns and restrictions”.
Liberum places a 725p share price target on the pubs group and as it rates the stock a ‘hold’ it warns that offsetting headwinds with price increases could become harder and leave the company with “little room for manoeuvre”.
Shares in JD Wetherspoon slipped close to 1.5% on Monday, having opened trading at around 647p.