Interactive Investor

ii view: Premier Inn owner Whitbread outlines robust trading

A focus on value and growing its hotel and room numbers in Germany. Buy, sell, or hold?

11th January 2024 15:23

Keith Bowman from interactive investor

Third-quarter trading update 30 November

  • Total UK and German sales up 11%
  • Total UK sales up 9%
  • Total German sales up 47%

Guidance:

  • Continues to expect its German business to breakeven during the financial year 2025

Chief executive Dominic Paul said:

"We continue to execute against our strategic priorities at pace and given the structural shift in UK hotel supply, positive current trading, a clear commercial plan and our ongoing focus on driving cost efficiencies, we remain confident in the outlook."

ii round-up:

Premier Inn and Beefeater owner Whitbread (LSE:WTB) today offered confidence in its outlook as it detailed growth in both accommodation and Food and Beverage (F&B) sales. 

Total third-quarter sales for its combined UK and German operations rose 11% year-over-year, with accommodation demand climbing 13% and F&B sales up 7%. Fourth-quarter UK accommodation sales to date had risen 12%, with management reiterating its expectation for Germany to breakeven during the 2025 financial year ahead. 

Shares in the FTSE 100 company rose by more than 2% in UK trading having come into this latest news up by just over two-fifths in 2023. That’s similar to shares of fellow FTSE 100 hotelier InterContinental Hotels Group (LSE:IHG) and much better than the 3.8% gain made by the FTSE 100 index itself. Whitbread shares now trade close to post-pandemic highs.

Whitbread is the UK and Ireland’s largest hotelier offering customers access to more than 84,000 rooms in over 840 hotels. 

UK like-for-like accommodation sales rose 9% in Q3, with total sales including new rooms climbing 11%. Sales for its newer and expanding German hotels climbed 14% on a like-for-basis, although by 47% in total and including new room openings.   

Helped by efficiency savings of up to £50 million, UK cost inflation for the 2025 financial year ahead is expected by management to fall to between 3% and 4%, down from a forecast rise of up to 8% for the current 2024 financial year.  

Broker UBS reiterated its ‘buy’ rating on the shares post the update. Full-year results are likely to be announced late April. 

ii view:

Tracing its roots back to 1742, Whitbread today employs over 39,000 people and is a constituent of the FTSE 100 index. Accommodation generates its biggest slug of sales at almost three-quarters, with food and drink at restaurant brands including Brewer’s Fayre and Cookhouse accounting for most of the balance. Geographically, the UK and Ireland dominate, with German revenues currently at around 5%. Competitors include Travelodge, Accor SA (EURONEXT:AC) and even pub chain Wetherspoon (J D) (LSE:JDW) with a select number of hotels attached to pubs.

For investors, heightened borrowing costs and pressured disposal income for its customers needs to be remembered, and economic conditions in Germany may be even tougher than in the UK. The impact of Covid-19 may still be washing through the system, while Whitbread lacks the geographical diversity of other players such as InterContinental. 

More favourably, a clear recovery from the pandemic has been seen, with like-for-like UK Premier Inn sales up 39% since its full year 2020 results. Cost inflation on its £1.7-£1.8 billion cost base is slowing, an expansion of hotel numbers largely in Germany continues, while its focus on shareholder returns is underlined by both an ongoing £300 million share buyback programme and a forecast dividend yield of around 2.5%.   

In all, and given its focus on customer value in tough economic times and a consensus analyst estimate of fair value of just over £40 per share, Whitbread shares look likely to remain supported by investors. 

Positives: 

  • Expanding in both the UK and Germany
  • Share buyback programme

Negatives:

  • Lacks the geographical diversity of other hotel operators
  • Uncertain economic outlook

The average rating of stock market analysts:

Buy

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