JD Wetherspoon shares surged Wednesday after the company reported bumper trading in the most recent period and breached previous sales records.

Wetherspoon’s like-for-like sales increased by 9.1% in the 13 weeks to 30 April 2023 as the pubs group recorded their best Easter trading period in terms of sales. Wetherspoon also said they had the busiest Saturday ever on the first May bank holiday.

The company said they expected sales for the full year are expected to be their highest on record.

JD Wetherspoon shares were trading over 7% higher at the time of writing on Wednesday.

“JD Wetherspoon has seen a further acceleration in its sales growth, with trading now firmly ahead of pre-pandemic levels. With an extra bank holiday in the last quarter, it’s likely to finish the year with a flourish,” said Derren Nathan, head of equity research at Hargreaves Lansdown.

“There will be a fizz of disappointment after the chain indicated that people preferred to stay at home and celebrate the Coronation rather than watch it in the pub.”

“Wetherspoon’s value proposition is holding it in good stead as the cost-of-living crisis continues and the action to bring debt down and optimise its portfolio of pubs is the right move.”

Derren Nathan continued to caution that although the company is heading for a record year, Wetherspoon shares are currently highly valued on an earnings basis.

“However, top line growth won’t necessarily drive a similar uplift in profits, with Tim Martin noting that inflationary pressures had become ‘intractable’, which is likely to weigh on investors’ minds. With the valuation now approaching 30x forward earnings its looking a little vulnerable, particularly if the green shoots seen in consumer sentiment don’t continue to germinate.”

JD Wetherspoon noted net debt was approximately £67m lower than before the beginning of the pandemic, having invested £185m in new pubs.

The FTSE 100 closed down on Tuesday after investors failed to find any major catalysts for significant moves in equities.

The FTSE 100 ended the day down 0.18% as traders returned to their desks after the long bank holiday weekend.

However, the tepid trade is unlikely to last long as markets gear up for US CPI tomorrow and further central bank action later this week.

Last week’s Federal Reserve and ECB decisions will be followed by the Bank of England, which is expected to raise rates to 4.5% on Thursday.

“European markets were fairly quiet on Tuesday compared to Asia where there were more pronounced moves up and down,” said Russ Mould, investment director at AJ Bell.

Housebuilders

Housebuilders were among the top fallers at the close on Tuesday after data from Halifax suggested the uptick in housing activity could be short-lived.

The housebuilding sector rose sharply last week after Nationwide data pointed to a recovery in house prices after months of declines. The timings of the Halifax and Nationwide data provide a mixed picture of the UK housing market.

“The Halifax figures pour cold water on the growing fires of optimism that had been lit across the property market in recent weeks. After clinging onto dwindling annual growth for a few months, the figures are now at a tipping point,” said Sarah Coles, head of personal finance, Hargreaves Lansdown.

“The spring has produced a wave of positive announcements – from mortgage approvals rising for a second consecutive month, to Nationwide’s 0.5% bump in April, and Zoopla’s claim that demand has hit a high for 2023. The RICS residential market survey for March still painted a picture of falling demand, dwindling sales and lower house prices, but there was hope that this could all turn around in April.”

The ‘cold water’ saw Persimmon, Taylor Wimpey and Barratt Developments fall around 1.7%-2.2%.

IAG was the top riser as optimism grows travel is gaining momentum, and leisure companies are in for a strong summer. IAG closed up 3.87%.

It is only the first stage but it is highly significant that Brazil has now accepted the studies of the efficacy of the Plant Health Care (LON:PHC) PREtec product PHC68949 for use in soybean cultivation.

Earlier than expected the Brazilian Ministry of Agriculture, Livestock and Food Supply (MAPA) the approval is ahead of evaluation by the Brazilian Health Regulatory Agency (ANVISA) and The Brazilian Institute of Environment and Renewable Natural Resources (IBAMA).

The group’s PHC68949 product is for use as a seed treatment for the control of root-lesion nematode (Pratylenchus brachyurus) in soybean.

Field studies have already shown that PHC68949 may provide control of harmful nematodes comparable to the traditional chemical nematicides and superior to current biological products. 

For Plant Health Care Brazil represents a very substantial market.

PHC68949 is a novel technology that amplifies a plant’s natural defence against damaging nematodes, increasing plant health and yield in a variety of crops.

Nematodes are microscopic parasitic worms living in the soil where they feed on plant roots, killing plants and reducing crop yields.

Globally, nematodes have been estimated to cause up to 12.3% of annual crop loss, worth approximately $157bn per year.

For 2022/23, the soybean harvested area in Brazil is forecast to be 42.9m hectares.

It has been reported that the use of nematicides in Brazil has increased 10-fold since 2015, with soybeans accounting for 52% of the use, followed by sugarcane at 23%, with the remainder on corn, cotton, coffee, potatoes and 14 other crops. 

This approval is an important stage in the whole process of gaining regulatory licenses, which could take another year or two to be granted.

CEO Jeff Tweedy stated that: 

“Today’s announcement marks a significant milestone in fulfilling our strategic objectives to launch transformative commercial PREtec products across substantial growth markets such as Brazil.

As the issue of food security continues to grow, and the farming world looks for technological solutions to achieve a sustainable future with better crops delivering higher yields and reducing environmental effects, our PREtec products will help meet global sustainability targets.” 

Analyst Opinion – Cenkos says Buy

John-Marc Bunce at Cenkos Securities rates the group’s shares as a Buy with a Target Price of 37p a share.

He states that this first stage approval came faster than expected.

Bunce considers that full approval could be a much shorter process than has been stated and that it could well come before the end of this year.

That would enable a product launch in 2024.

He also states that the Brazilian market opportunity alone is significant, backing up his predictions of close to break-even this year and with first profits showing up next year.

This morning the group’s shares are up 4% at 10.50p and looking capable of a renewed climb to an early 12p and above.

Direct Line can’t seem to catch a break. After suffering surging weather-related claims last year, rising motoring claims are now proving to be a thorn in the side of the insurance group.

Direct Line said increasing motoring claims, especially those for damage, are ‘expected to put pressure on earnings in 2023’.

Shares in the group were over 5% weaker early on Tuesday.

Total group gross premiums rose 9.7% to £805.7m in Q1 2023.

“The road ahead continues to look bumpy for Direct Line. Just as weather-related claims ease back to more normal levels, there’s little in the way of a let-off for the Motor division as damage-related claims tick higher,” said Matt Britzman, equity analyst at Hargreaves Lansdown.

“Add in claims inflation that continues to run at high single-digit levels, and the outlook for insurance profitability gets a little murky. There was positive news on the pricing front, especially in Motor, where planned rate hikes fed through to higher gross premiums. There’ll likely be more pricing action over the year as Direct Line looks to plump up margins in Motor.”

Solvency remained broadly unchanged from the prior year-end level, which meant an unwind of some of the improvement management saw early in the quarter. Along with pressure on earnings, the lack of solvency improvement could mean the dividend is under some pressure this year.”