Equities update: ‘spoons, Direct Line

Inflation continues to brew challenges for Wetherspoons

Mark Crouch, analyst at investment platform eToro, says: “The last few years might have felt like jumping out of the frying pan and into the fire for Wetherspoon investors. The pub giant looked to be recovering well from the COVID shock, only to be rocked by the onset of inflation. With food inflation being particularly rampant, Wetherspoons has been left in the firing line once again.

“This morning’s trading update reveals that steady recovery has resumed for the UK pub operator. Sales for the quarter have climbed vs. the same period last year, and the business has seen an uptick in demand for ales, wines and coffee. In an effort to trim the fat, Wetherspoons have culled 18 pubs with another 17 on the market, which are either smaller, older or in close proximity to another Wetherspoons pub.

“Rising energy and labour costs are still a concern, and while the share price has performed valiantly since the 2022 lows, it is still languishing well below pre-pandemic levels. The cost of a pint in a London Wetherspoons has more than doubled since 2019, and the company, who are famous for offering a cheaper pint over their rivals, are having to yield to inflationary pressures in order to defend their margins.”

Direct Line looks to get costs under control

Adam Vettese, analyst at investment platform eToro, says: “Direct Line has started the year well with a 15% hike on gross premium and fees on the same period last year. If not for some adverse weather in Q1 this could have seen the Home division perform better still. The main focus going forward has to be cost savings. The company struggled to deal with cost of claims spiking during recent periods of higher inflation, that decimated the share price and saw dividends slashed. Adam Winslow the CEO claims they can deliver £100m of savings by the end of 2025, which if achieved will be well received by shareholders as it would pave the road for dividend yield to recover to something closer to pre-2022 levels.

“The Aegeas buyout proposal sent shares above 220p for the first time since the beginning of last year and despite the offer being rejected the shares have made some noted progress since last July’s all time low. Should we see continued double-digit growth across the business as well as getting costs under control, we could well see shares creep up to challenge the year-high 222p level once again and beyond.”