The Investment Column: Wetherspoon has right mix
Wednesday 05 March 1997
The shares, some of the most highly rated on the whole market, have fallen back from the highs reached at the end of last year but at 1140p, down 2.5p yesterday, they have risen about eight-fold since the company floated four years ago.
The market loves growth stocks like Wetherspoon but is nervous about them and the company is right to stress that what investors think they see is what they actually get.
Depreciating pubs to the tune of pounds 50,000 a year each is more prudent than strictly necessary and certainly more prudent than any of its peers.
Importantly, that policy means cash flow is much stronger than earnings per share, always a good sign in a fast-growing company.
Wetherspoon is one of those shares that always looks expensive but never is as long as you have faith in the company's ability to continue growing earnings per share in excess of 30 per cent a year. A daunting price-earnings ratio is reined in to more comfortable levels as long as that continues. Fortunately at Wetherspoon there is every reason to believe it will.
Wetherspoon's earnings growth is driven by new openings, not like-for- like sales improvements, which at about 3 per cent are nothing spectacular. With only 146 pubs open at the start of the period, however, there is still plenty of scope for growth with the formula of big, music-free pubs with food all day and smoke-free areas seemingly what people want both outside the London heartland and in quite small towns. If Wetherspoon's pubs work in towns of as little as 15,000, as they seem to, then the company's target of 1,000 pubs is probably conservative.
On the basis of Merrill Lynch's forecast of pounds 18.5m profit this year and pounds 27.3m next time the shares trade on a prospective price-earnings ratio of 24 falling to 19. Buy.
- 1 Universities aren't working us hard enough, say undergraduates
- 2 Lego letter from the 1970s still offers a powerful message to parents 40 years later
- 3 To help fuel their propaganda machine against the poor, our government has now decided to redefine the word 'welfare'
- 4 Woman opens professional cuddling shop – gets 10,000 customers in first week
- 5 Grayson Perry: London needs affordable housing because 'rich people don't create culture'
Heroin to be prescribed to Canadian addicts by doctors
Tower Bridge glass walkway 'smashed' by night-time visitor dropping bottle of beer
Charing Cross fire: Station closed and 100 evacuated over blaze on train
Woman opens professional cuddling shop – gets 10,000 customers in first week
Revealed: the case against Bill Cosby – through the stories of his accusers
Rochester by-election: Ukip gains second MP as Tory defector Mark Reckless holds seat
'Beast of Bolsover' Dennis Skinner takes Ukip MP Mark Reckless to task moments after he is sworn in
Rochester by-election: Labour MP Emily Thornberry resigns after posting white van and England flags tweet
France 'blocks' Russian sailors from boarding a warship
Rochester aftermath: Sacking of Emily Thornberry will make work of Labour MPs '10 times harder'
Revealed: How the world gets rich – from privatising British public services
iJobs Money & Business
Voluntary Only - Expenses Reimbursed: Reach Volunteering: Age Concern Slough a...
Voluntary Only - Expenses Reimbursed: Reach Volunteering: Crossroads Care is s...
£20000 - £25000 per annum + OTE £35,000: SThree: We consistently strive to be ...
£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...