Will the budget help the Wetherspoon share price get back to 1,700p?

Close-up of British bank notes

The JD Wetherspoon (LSE:JDW) share price is sitting 40% lower than its December 2019 high. Because of the ongoing pandemic-related uncertainty, I haven’t seen this as a buying opportunity for my portfolio. Could the autumn budget and the incoming cuts to alcohol duty and business rates change my mind?

Record loss

Last month, Wetherspoon announced a record loss of almost £200m for the year ending 25 July. This is following a loss of £105m in the previous year – it’s first annual loss since going public in 1984. Now, net income has plunged deep into the red.

It’s obvious why the company is struggling. Lockdowns, curfews, firebreaks, tier systems, pints with a substantial meal only. And now even with pubs back open nationwide, I see three challenges holding back the Wetherspoon share price.

1 – Wetherspoon is starting to face supply chain issues, recently announcing that some pubs had ran out of salt. This could become a bigger issue for the pub chain, impacting more than just their salt sachets. 

2 – It is also facing staff shortages, particularly in areas popular for ‘staycations’. Staffing problems are becoming an increasing issue for many sectors of the UK economy and may persist for a while.

3 – The UK budget announced an increase in the minimum wage, effective from 1 April 2022. Roughly 30% of the price of a pint in a pub goes to staff wages. 

These challenges could negatively impact revenue and profitability in the coming months and years. If it does, I don’t believe Wetherspoon has sufficient pricing power to pass inflationary costs onto its customers. The appeal of Wetherspoon pubs for many is the relatively low price of the food and drink. So what is the positive news from the budget?

Budget boost for the Wetherspoon share price?

Chancellor of the Exchequer Rishi Sunak announced a 5% cut to the tax on pulled pints. This is the biggest cut to beer duty for 50 years. Forecasts for economic growth are also up to 6.5%. This signals a return to economic normality and indeed a return to the pub. This news was followed by a 5% jump in the Wetherspoon share price as well as competitors Mitchells & Butlers and Marston’s.

Sunak also announced a 50% business rates discount for the retail, hospitality, and leisure sectors. However this will barely dent Wetherspoon’s annual bill of around £60m as relief is capped at £110,000. Meanwhile, there was no confirmation over freezing the 12.5% VAT rate on food sales. The pub sector will be hoping there’s no return to the pre-pandemic rate of 20%.

I’m not confident that the savings from the budget can significantly offset other inflationary pressures. I think it could be a while yet before the Wetherspoon share price rises back to December 2019 levels. I’ll likely be a Wetherspoon visitor in the near future but I lack the conviction to become an investor.

The post Will the budget help the Wetherspoon share price get back to 1,700p? appeared first on The Motley Fool UK.

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More reading

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