Pub group J D Wetherspoon (JDW) has raised approximately £93.7 million by selling 8.37 million new shares via a share placing at £11.2 representing a 5.3% discount to yesterday’s mid-market closing price.
The shares gained 6% to £12.5 as investors welcomed the actions to bolster funds ahead of the economy potentially opening in the spring and to provide the necessary liquidity to deal with low sales as the market normalises.
SECOND SHARE RAISE
Today’s placing represents 6.95% of the company’s existing share capital and is the second time the company has tapped shareholders since the start of the pandemic.
Wetherspoon raised £137.7 million in April via a share placing at £9 which increased the share count by 15%. The firm also received £48.3 million under the government’s large business interruption loan scheme.
REQUIRED LIQUIDITY BOOST
The reason for the share issue became clear after the company revealed it had liquidity of £139.1 million as of 14 January and despite furloughing 99% of employees was burning £4.1 million a week while its pubs are closed.
For the first time Wetherspoon also revealed that it is required to maintain a minimum liquidity cash cushion of £75 million which replaced the covenant waivers which run until July 2021. This means it effectively had £64 million of headroom.
As Numis notes, ‘this represents under four months of closure. In this knowledge, the decision to launch a further equity raise is understandable (the first company to attempt a follow-up raising)’.
SCENARIO ANALYSIS
Management’s base case scenario is that the current lockdown will remain until the end of March with like-for-like sales then starting at minus 50% and subsequently increasing 5% a week, levelling out at minus 15% in mid-May until the end of the financial year.
Under this scenario sales in the 2022 fiscal year are expected to match those in 2019. EBITDA (earnings before interest, taxes, depreciation, and amortisation) is expected to reach £204 million compared with £219 million in 2019.
The worse case scenario sees sales remaining at minus 50% for the rest of the 2022 financial year. This outcome would see EBITDA around 34% lower at £155 million.
Chairman Tim Martin commented ‘the equity placing announced today will help the company, along with the other actions it has taken, to emerge from the pandemic in a strong position.
