ii view: Premier Inn owner predicts strong staycation demand

One of the most challenging years in its 279-year history. We assess prospects. 

Full-year results

• Revenue down 71.5% to £589 million
• Reported pre-tax loss of £1 billion
• Adjusted pre-tax loss of £635 million, down from a profit of £358 million
• No dividend payment
• Cash and liquidity of £1.26 billion, up from £503 million year-over-year

Chief executive Alison Brittain said:

"The last financial year was one of the most challenging in our 279-year history, as we operated under significant Covid restrictions which had many implications for our businesses, our customers and our people. 

“We hold a uniquely advantaged position in the UK market as the largest operator with the strongest brand, and we will continue to invest in our estate to enhance our customer proposition. In Germany, we remain confident of the opportunity to replicate our model in the UK.

“We are well-placed to enhance our market leadership position even further in the UK, and accelerate our growth in Germany, capitalising on the enhanced structural growth opportunities that will exist and driving long-term value for all our stakeholders."

ii round-up:

Premier Inn owner Whitbread (LSE:WTB) today reported a loss of £1 billion as its hotel and restaurant outlets across the UK and Germany stayed closed for much of the year under the pandemic.

However, over 92% of its UK hotels are now back open with management expecting strong demand for 'staycations' for UK tourist destinations throughout the summer. The next phase of its efficiency programme targeting a further £100 million of cost savings by 2024 is also due to launch. 

Whitbread shares fell by more than 2% in UK trading, leaving them up by more than 50% since late October and just prior to the announcement of vaccine development success. Shares for InterContinental Hotels (LSE:IHG) are up by around a third over that time while shares for pub operator Wetherspoons (LSE:JDW) are up by close to 60%. 

A full reopening of its UK restaurants beckons come the next marker of the government’s roadmap on 17 May, with 18 of its 30 operational hotels in Germany back open. A gradual recovery in business and event-driven leisure demand is expected later in the year. 

Whitbread operates over 800 hotels. Its restaurant brands include Beefeater, Brewer’s Fayre and Cookhouse Pub. 

Helped by a £1 billion rights issue last year, group cash and liquidity stood at £1.26 billion.  No dividend was again declared, a situation which is expected to last until March 2023 given a current agreement with its lenders and pension trustees. 

Excluding a £348 million impairment charge relating to goodwill on acquisitions in Germany and property, triggered by the pandemic, an adjusted pre-tax loss of £635 million was made. 

ii view:

Starting life as a brewery company, today Whitbread operates over 800 hotels. It opened its first Premier Inn in Germany back in 2016. Over 78,000 rooms are available across its UK outlets. It Germany footprint is being expanded to build an open and committed network of over 10,000 rooms. It estimates potential for up to German 60,000 rooms. 

For investors, pandemic-related uncertainty cannot be overlooked, with the London money machine suffering given a lack of overseas tourists. The dividend payment also remains suspended, and management is only able to offer limited forward guidance. 

That said, the rollout of vaccines across its core UK market is ongoing. The balance sheet was also previously strengthened via a significant fundraising, and an estimated price-to-net asset value of 1.4 times compared to a three-year average of 2.4 times may offer value. In all, while room for caution persists, a leading UK market position and a growing German footprint are not to be ignored. 

Positives: 

• Continuing to cut costs
• Balance sheet previously boosted by £1 billion 

Negatives:

• Covid hit full year sales down 71.5%
• Lacks the geographical diversity of other hotel operators

The average rating of stock market analysts:

Buy