ii view: Premier Inn owner Whitbread details a mixed quarter

UK hotels outperform but Covid related disruption persists. We assess prospects. 

Third-quarter trading update to 25 November

• Total UK sales up 3.1% ahead of full-year 2020
• Food and beverage sales down 11.1%

Chief executive Alison Brittain said:

"Q3 represented another strong performance in the UK with Premier Inn continuing to trade significantly ahead of the market. UK accommodation sales remained resilient in December, albeit softening as we moved through the month and into the festive period as a result of the onset of the Omicron Covid-19 variant."

ii round-up:

Premier Inn owner Whitbread (LSE:WTB) today pointed to a “strong” UK hotel performance during the third quarter, although it also flagged a more challenging environment for its pub and restaurant outlets.

Total UK sales grew by 3.1% compared to the same quarter in the financial year 2020, but total food and beverage sales retreated 11.1%. 

Whitbread shares fell marginally in UK trading, having gained by more than 50% since pandemic induced lows  in March 2020. That’s similar to the gain for the FTSE All Share index, although below the 90%-plus gain for international hotelier InterContinental Hotels (LSE:IHG). 

Whitbread maintained its expectation for Premier Inn’s UK revenues per average room to recover to pre-Covid levels this year. 

The company operates over 800 hotels. Its restaurant brands include Beefeater, Brewer’s Fayre and Cookhouse Pub. Its 32 open hotels in Germany achieved occupancy levels of 59.9%, up from 47.5% in the prior second quarter. 

More recent trading for the six weeks to the 6 January had seen UK hotel sales staying resilient despite the new Covid variant. Total UK accommodation sales had grown 5.1% compared to the same quarter 2019/2020. Less favourably, German lockdown restrictions caused occupancy rates to decline by 36% over the six-week period.

ii view:

Whitbread’s Premier Inn outlets give customers access to more than 80,000 UK rooms. It is the largest hotelier in the UK and opened its first Premier Inn in Frankfurt, Germany in 2016. Along with its open German estate of 32 hotels, all now branded Premier Inn, it also has a further 43 hotels in the pipeline. Starting life as a brewery company over 250 years ago, Whitbread today generates around two-thirds of its sales from its hotel operations and the rest from pubs and restaurants. 

For investors, a Covid clouded outlook continues. Rising costs, supply chain pressures and a tight hospitality labour market all add to challenges. The dividend payment also remains halted. On the upside, Whitbread is expected to continue taking market share. Its 2020 fundraising provides for both a strengthened balance sheet and room for ongoing investment, while a cost saving programme is ongoing. In all, and with the company’s value offering likely to remain appealing to inflation squeezed UK and German consumers, long-term investors should stay patient. 

Positives: 

• German expansion
• Balance sheet previously boosted by £1 billion 

Negatives:

• Dividend payment suspended
• Lacks the geographical diversity of other hotel operators

The average rating of stock market analysts:

Buy