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Highlights:
- Profit surge and dividend reinstatement: JD Wetherspoons posted a 73% profit rise and declared its first dividend since 2019.
- Valuation concerns: Shore Capital remains cautious, citing a 17.3x earnings valuation and higher-than-optimal leverage.
- Stock reaction: Despite early gains, Wetherspoons shares dipped 0.3% following the results announcement.
JD Wetherspoons (LSE:JDW), the British pub chain, delivered robust annual results, with significant profit growth and the reinstatement of its dividend. However, despite these positive developments, Shore Capital maintained its 'hold' rating on the stock, expressing caution about the company's current valuation.
Wetherspoons reported a 73% rise in pre-tax profit, reaching £73.9m for the year, reflecting a strong rebound in profitability, especially during the second half of the year. This result was in line with market expectations and exceeded Shore Capital's forecasts. The company also declared a final dividend of 12p per share, marking its first dividend payment since 2019, equivalent to its annual dividend from five years ago.
Despite the solid performance, Shore Capital raised concerns over the stock's valuation. With the shares trading at 17.3 times earnings, analyst Greg Johnson pointed out that the company's leverage ratios, at 3.5 times net debt to EBITDA, were higher than optimal. He also highlighted that the pub group is a net seller of properties and seeing a normalization in like-for-like (LFL) sales trends. This led to questions about whether Wetherspoons deserved such a premium valuation compared to its peers, even though it is widely considered best-in-class.
While Wetherspoons' results initially lifted the stock, early gains were erased by midday, with shares down 0.3% at 722.50p as of 1058 BST.
