ii view: Whitbread profit surpasses pre-Covid level

Shares of this FTSE 100 hotelier are down more than 10% year-to-date. We assess prospects. 

First-half results to 1 September

• Revenue doubled year-over-year to £1.35 billion
• Pre-tax profit of £307 million, up from a loss of £19 million year-over-year
• Dividend down 25% to 24.4p per share compared to the pre-pandemic H1 2020
• Net debt and lease liabilities of £3.57 billion

Chief executive Alison Brittain said:

"We remain focused on maintaining our position as the UK's number one hotel chain and are well on the way to replicating that success in the German market. We delivered an outstanding trading performance in the first half of the year, with revenues and profit before tax above pre-pandemic levels. 

"Despite macroeconomic uncertainties, our current trading performance is strong and our business has proven its resilience in previous downturns. With a robust balance sheet and significant growth potential in both the UK and Germany, we remain confident in the full year outlook and our ability to deliver long-term value for all our stakeholders."

ii round-up:

Premier inn owner Whitbread (LSE:WTB) today reported a return to profit as sales more than doubled year-over-year to £1.35 billion given an ongoing recovery from the depths of the pandemic. 

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Pre-tax profit climbed to £307 million compared to last year’s first half loss of £19 million with the outcome also exceeding its pre-Covid first half performance. An interim dividend payment of 24.4p per share compared to no dividend this time last year due to the pandemic but was down by a quarter on the pre-Covid 2020 interim payment of 32.7p per share. 

Whitbread shares retreated by around 2% in early UK trading having come into this latest announcement down by around 13% year-to-date. Shares for fellow FTSE 100 hotelier InterContinental Hotels Group (LSE:IHG) are down by around 6% during 2022 while shares for budget pub chain Wetherspoon (J D) (LSE:JDW) remain down by more than 50%. 

Along with its Premier Inn outlets, Whitbread also operates a series of value pub chains such as Beefeater and Brewer’s Fayre, often to the side of its inns, as well as an expanding number of Premium Inns in Germany. 

Whitbread flagged continued challenging trading conditions for the budget end of the pub restaurant market with sales across its outlets still 5% below pre-Covid levels. 

In Germany, and aided by the recovery from the pandemic, its more established hotels had proven profitable for the first time during the second quarter to early September. 

Accompanying management outlook comments for its core UK Premium inns business pointed to a positive forward booked position with momentum into the third quarter being in line with the year-to-date trend. 

Broker Morgan Stanley expects to see full year forecasts heading higher following the results, with it reiterating its ‘overweight’ stance in the wake of the figures.

ii view:

Starting life as brewery company over 250 years ago, Whitbread today employs over 30,000 people. It generates around 70% of its sales from accommodation with the balance coming from food and beverage sales. Most of its revenues at over 95% still come from the UK. Its core current goals are to grow and innovate in the UK, expand its presence in Germany, and enhance its capabilities to support long-term growth. 

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For investors, a highly uncertain economic outlook including a cost-of-living crisis for consumers cannot be forgotten. Rising inflation including wages and utility bills are expected to add an additional £60 million in costs this current financial year, while UK food and beverage sales have yet to recover to their pre-pandemic levels. 

More favourably, a recovery from the pandemic is evident with room number expansion in both the UK and Germany ongoing. Initiatives to help return food and drink sales to pre-pandemic levels are being taken whilst expected full year losses for its German operations have been reduced to between £40 million to £50 million from a prior £60 million to £70 million. 

On balance, and with the current consensus analyst estimate of fair value stood at over £34 per share, grounds for longer term optimism arguably persist.  

Positives: 

• Ongoing programme of investment
• German expansion

Negatives:

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

The average rating of stock market analysts:

Buy