15 Share Ideas For 2025 Update: JD Wetherspoon JDW

JD Wetherspoon JDW

JD Wetherspoon updated the market on H125 trading this morning, covering the six months ending Jan 26.

JDW made it into my top 15 share ideas for 2025. Chiefly because they are the low-cost operator in a sector pushed to breaking point by NI/Living wage increases. As these pressures bite, I expect JDW to not only pass costs on more easily than others but also increase market share as competitors close and consumers trade down the value chain.

These cost increases don’t come into effect for another three months so today’s update does not include the annual 60m CEO Tim Martin has estimated.

Today we’re told that overall sales increased by 4% vs the same period last year. On the face of it, this may seem a reassuring if unspectacular number in the current inflation environment.

However, we must also consider that the estate shrank by 18 sites in the period.

I’ll now try to extrapolate what I can from the numbers to estimate what I believe the H125 results will look like when published in a couple of months. I’ll also try to imagine what H126 might look like after the NI/Living wage increases are implemented.

This will involve a fair degree of assumption and guesswork so please feel free to discuss anything with which you disagree…

I’ll use 36m PBT from last year’s H124 results as my starting point.

We can certainly add 40m to that from the 4% revenue increase, that’s straightforward enough.

Then we can deduct the operating costs of 18 closed sites in the period. Total operating costs were 923m from 814 sites in H124. That’s 1.13m per site or just over 20m for the net 18 closures from H124 to H125. This assumes the closed sites all had operating expenses in line with the average (also that central costs reduce at the same pro rata rate), so that’s two major assumptions in one!

That leaves us with 903m operating costs from the remaining sites which would have experienced some inflationary pressures (major assumption number three incoming!). How is 5% as an estimate? fair? absolutely terrible? who knows but I’m going for it. That adds 45m.

We’re told interest costs will be 6m lower in FY25 so that’s a 3m saving for the half year.

That gives us a total of 63m revenue gain/cost savings minus 45m cost increases.

A net 18m to add to last year’s 36m PBT. That makes my estimate for H125 54m PBT.

That’s all well and good but what really counts in investing is not what just happened but what happens next…

…So what of H126?

We know a 30m hit is coming, that would leave us with only 24m H126 PBT, 48m on an annualised basis, 36m after tax and a 20.4x forward multiple for today’s shares.

I believe this is the scenario the market expects and is priced for which presents an opportunity for anyone who believes JDW has the wiggle room to increase prices by 2.6%.

This is all it would take (all else being equal) for H126 to get to 50m PBT for the period, 100m annualised and 75m post tax for FY26.

If this plays out then you are paying less than 10x cash flows for today’s shares and that says nothing of the freehold asset backing.