The Investment Column: Wetherspoon dips in growth glitch

Has the JD Wetherspoon bubble burst? A darling of the stock market and the drinks sector its shares have raced away ever since it floated. However, analysts downgraded profits figures at the start of the year after the company indicated that a slowdown in new pub openings and higher costs associated with introducing new lined glasses to give customers a full pint, could affect first-half profits. The result: the shares have underperformed the market by a quarter since January.

Yesterday's first-half figures, showing a 20 per cent rise in underlying pre-tax profits to pounds 9.7m for the six months to February, reassured investors that Wetherspoon's growth had not stalled and its shares rose 15p to 301.5p. But doubts remain. Wetherspoon has proved it is fallible and it will find it increasingly difficult to keep up the same rate of growth it has achieved in the past. The World Cup is bound to hit sales during the summer as football fans flock to pubs with televisions, competition is hotting up as the big pub chains pump billions of pounds into the market and sites are becoming harder to find.

While Wetherspoon should still be able to fund its ambitious expansion programme without issuing more equity, its finances are looking a bit tight and it has been forced to sell pubs and lease them back to buy new sites.

That said Wetherspoon will open 50 new pubs in the second half alone and more than double the size of its estate by 2001. Margin pressure should also be short-lived.

Panmure Gordon forecasts current year profits of pounds 22.9m rising to pounds 32.8m in the following year putting the shares on a prospective p/e ratio of 28 then 21. The shares deserve their premium rating. Hold.

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