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Beaufort Securities Breakfast Alert: JD Wetherspoon, Vodafone

Beaufort Securities Breakfast Alert: JD Wetherspoon, Vodafone

Today's edition features:

JD Wetherspoon (LON:JDW)




The FTSE-100 finished Friday's session 0.38% higher at 7,343.08, whilst the FTSE AIM All-Share index added 0.28% to stand at 916.08. In continental Europe, the CAC-40 finished up 0.24% at 4,993.32 whilst the DAX was 0.13% lower at 11,963.18.

Wall Street

In New York on Friday, the Dow Jones Industrial rose 0.21% to 20,902.98, the S&P-500 firmed 0.33% to 2,372.6 and the Nasdaq gained 0.39% to 5,861.73.


In Asian markets this morning, the Nikkei 225 had fallen 0.13% to 19,630.35, while the Hang Seng firmed 1.25% to 23,864.17.


In early trade today, WTI crude was down 0.39% to $48.10/bbl and Brent was down 0.64% to $51.04/bbl.



Vodafone to create 2,100 UK customer service jobs

Mobile phone giant Vodafone (LON:VOD) says it will create 2,100 jobs across the UK. The company is expanding existing customer service centres, with 800 additional posts in Manchester, almost 150 in Newark, more than 150 in Stoke-on-Trent and about 100 in Glasgow. Its third-party customer service partners will create another 600 jobs in Newcastle, nearly 200 roles in the west of Scotland, and 100 in Cardiff. It comes days after it announced hundreds of job cuts at its Newbury HQ. The firm said the jobs would improve the quality of service for its 18 million UK customers and was part of a wider, three-year, £2bn investment programme in network and services. "These new, skilled roles will make a real difference to our customers and a real difference to the communities that are the focus of our customer services investment," said Vodafone UK chief executive Nick Jeffery. Last October, regulator Ofcom fined Vodafone £4.6m for "serious" breaches of consumer protection rules, its largest fine for a telecoms operator.

Source: BBC News


Company news

JD Wetherspoon (LON:JDW, 935.50p) – Hold

JD Wetherspoon ('Wetherspoon'), UK's leading owner-operator of pubs, on Friday announced its interim results for the 26 weeks ended 22 January 2017 ('H1 FY2017'). During the period, before exceptional items, revenue advanced by +1.4% to £801.4m, while like-for-like ('LFL') sales increased by +3.3% against the comparative period (H1 FY2016). With improved operating margin at +8.1% (H1 2016: 6.3%), operating profit increased by +31.7% to £65.1m and pre-tax profit rose +42.8%, leading earnings per share to jump +51.6% to 33.8p (including shares held in trust). Post the exceptional items, operating profit grew +31.7% to £65.1m, pre-tax profit increased +9.0% to £39.9m and earnings per share improved +5.0% to 27.2p. The total exceptional items stood at £7.3m (H1 2016: £4.3m gain), primarily from loss on disposal of £6.6m (H1 2016: £0.1m) and an impairment charge related to closed pubs and pubs which are on the market of £5.2m (H1 2016: £0.1m). Free cash flow stood at £49.2m (H1 2016: £55.7m), while net debt increased by £45.2m to £696.0m, implying net debt to EBITDA ratio of 3.46x (FY2016: 3.47x). On the operational front, the Group opened 2 new pubs and closed 22 pubs, bringing total number of pubs at the period end to 906. Wetherspoon's Chairman, Tim Martin commented "[the company] anticipates significantly higher costs in the second half of the financial year. In view of these additional costs and our expectation that like-for-like sales will be lower in the next six months, the company remains cautious about the second half of the year. Nevertheless, as a result of modestly better-than-expected year-to-date sales, we currently anticipate a slightly improved trading outcome for the current financial year, compared with our expectations at the last update". The Group declared an interim dividend of 4.0p per share, in line with last year, to be paid on 25 May 2017.

Our view: Wetherspoon performed satisfactorily in the H1 with LFL sales growth of +3.3% with improved operating margin to +8.1%. LFL sales was comprised of Bar +2.4% (61.4% sales), Food +5.1% (34.8% sales), Fruit/Slot machines -2.1% (2.6% sales) and Room Sales (at hotels) of +14.8% (1.0% sales). The improvement in margin was driven by lower utility and interest costs and the disposal of lower-margin pubs. Post period, Wetherspoon recorded slower LFL growth of +2.7% while total sales decline of -0.2% in the 6 weeks ended 5 March 2017. Looking ahead, the Group is planning to increase capital investment in existing pubs to c.£60m in the FY2017 (FY2016: £34m). Having seen strong LFL and EPS growth in the H1, the Board remain cautious for the second half of the year, expecting significantly higher costs (Living Wage requirement already satisfied) and lower LFL growth. The Group has also warned that in the FY2018, there will be additional costs of some £20m expected to incur due to combination of business rates, electricity taxes, excise duty and Apprenticeship Levy. The proposed sugar tax will also impact the Group from April 2018 some £4m. Given number of cost impacts expected to come through we believe LFL to remain low, while margin likely to decline from current level. Wetherspoon's high debt levels will remain as concern as it increases capital investment while continues dividend payments which means possibility for share buybacks this year can be thin or at a smaller amount. FY2017E and FY2018E P/E multiples of 16.6x and 16.2x with dividend yield of both of just 1.3% looks just about correct give the challenges management faces. Beaufort maintains its Hold rating on the shares.

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