Interactive Investor

ii view: worth checking into Premier Inn owner Whitbread?

A budget offering in tough economic times and expanding overseas. We assess prospects for this FTSE 100 company.

24th November 2023 15:48

by Keith Bowman from interactive investor

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First-half results to 31 August

  • Total revenues up 17% to £1.57 billion
  • Pre-tax profit up 29% to £395 million
  • Lease-adjusted net debt up 14% to £2.53 billion
  • Interim dividend up 40% to 34.1p per share
  • New £300 million share buyback programme

Chief executive Dominic Paul said:

“This is an impressive first half performance. In the UK, we maintained high levels of occupancy whilst continuing to attract excellent guest scores and offering great value for our customers. The strengths of our operating model and our continued focus on driving cost efficiencies across the business resulted in UK margins exceeding pre-pandemic levels. 

“The Group is in excellent shape, trading well and has significant growth potential, both in the UK and Germany. Based on our strong performance to-date and an encouraging forward booked position, we remain optimistic about the full year outlook and look forward with confidence as reflected by our increased interim dividend and further planned share buy-back.”

ii round-up:

Whitbread (LSE:WTB) is the largest hotelier in the UK. Premier Inn outlets give customers access to more than almost 84,000 rooms across the UK and Ireland over 849 hotels. 

Its restaurant brands include Beefeater, Brewer’s Fayre, and Cookhouse Pub. 

It opened its first Premier Inn in Frankfurt, Germany back in 2016 and now has 57 open hotels or over 10,000 rooms with a further 6,000 rooms in the pipeline.

For a round-up of this these latest results announced on 18 October, please click here.

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 accounting for most of the balance. Geographically, the UK and Ireland dominate, with revenue from German operations currently at around 5%. Competitors include Travelodge, InterContinental Hotels Group (LSE:IHG) and even pub chain Wetherspoon (J D) (LSE:JDW) has a select number of pub with hotels attached.   

For investors, the difficult economic backdrop for customers, including elevated mortgage and rental costs, cannot be ignored. The impact of Covid-19 may still be washing through, with the post pandemic travel boom yet to fully fade. Geographical diversity lags other players such as Accor SA (EURONEXT:AC), while costs for businesses generally remain heightened, and economic conditions in Germany may be even tougher than in the UK. 

On the upside, positive first-half trading continued into the third-quarter and early October. Cost increases, particular for items such as food have also eased. Meanwhile, an expansion of hotel numbers, largely in Germany, continues, while its focus on shareholder returns is underlined by both a new £300 million share buyback programme and a forecast dividend yield of nearly 3%.   

For now, and given its focus on customer value in tough economic times and consensus analyst estimate of fair value at over £40 per share, investors are likely to be reluctant to check out just yet.

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

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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