ii view: Whitbread bullish given room for German expansion

First-half results 31 August

• Revenue flat at £1.57 billion
• Adjusted pre-tax profit down 13% to £340 million
• Interim dividend up 7% to 34.6p per share
• New £100 million share buyback
• Net debt of £370 million, down from net cash of £67 million

Guidance:

• Expects to breakeven in Germany during the second half
• Launching a new five-year growth plan including increasing adjusted pre-tax profit by at least £300 million between 2025 and 2030

Chief executive Dominic Paul said:

"We are making excellent progress with our plans and over the next five years are set to deliver a step change in our performance which will fund significant returns to shareholders. 

"In the UK, we have a clear pathway to further extend our market-leading position and capitalise on the favourable UK supply backdrop. 

 "In Germany, we are really encouraged by our progress to date. Our longer-term plans to become the country's number one hotel brand are also on track, as we move towards replicating our success in the UK market.”

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ii round-up:

Whitbread (LSE:WTB) via the Premier Inn brand is the UK’s largest hotelier. A portfolio of 855 hotels and almost 86,000 rooms provide the FTSE 100 company with a 12% market share. 

Its Food and Beverage (F&B) restaurant brands include Beefeater, Bar + Block, Brewer’s Fayre, and Table Table. 

Whitbread opened its first Premier Inn in Frankfurt, Germany in 2016 and now has 59 open hotels or over 10,500 rooms with a further 6,700 rooms in the pipeline.

For a round-up of this this latest trading update announced on 16 October, please click here.

ii view:

Tracing its history back to 1742, Whitbread today serves over five million customers every month. Employing more than 36,000 people, accommodation generates its biggest slug of sales at almost three-quarters, with food and drink the balance. Geographically, the UK and Ireland dominate, with German revenues now growing to 7%. Competitors include Travelodge, Accor SA (EURONEXT:AC) and even pub chain Wetherspoon (J D) (LSE:JDW) with a select number of pub attached hotels.   

For investors, elevated borrowing costs and squeezed consumer incomes look to be hindering customer bookings and spending at its restaurants. There's also disruption to restaurant operations under format changes. The weather and the timing of bank holidays can impact performance, net cash has slipped to net debt, while Whitbread lacks the geographical diversity of other players such as InterContinental Hotels Group (LSE:IHG).

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On the upside, a move towards breakeven in Germany is on the horizon, with its marketplace estimated to be 40% bigger than the UK, fragmented and with no clear market leader. Initiatives under a five-year growth plan include a near doubling of room numbers in Germany. Cost savings of £50 million per year on average to 2030 are now being pursued, while shareholder returns now include a new £100 million share buyback as well as an estimated future dividend yield of around 3%.   

On balance, and despite room for caution, the hotelier’s continued push to become the leading player in Germany and a consensus analyst fair value estimate stood at over £39 per share, offer grounds for longer-term hope.  

Positives: 

• Expanding in both the UK and Germany
• Asset-backed balance sheet

Negatives:

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

The average rating of stock market analysts:

Buy