Whitbread is well-positioned at the cusp of what could be a return to some sort of normality, writes our head of markets.
The summer staycation boom in the UK is boosting prospects for Whitbread (LSE:WTB) after a year in which its estate of Premier Inn hotels largely stood idle.
In a first-quarter trading update, it said forward booking trends are very strong throughout the summer, especially in tourist locations, if not at airports or within central London. Improving metrics are however notable as the effects of the pandemic slowly recede.
As has become the trend among many company updates of late, the figures reported are in comparison to two years prior, in the pre-pandemic world, to give more meaningful comparisons. The numbers are understandably stark for Whitbread, with accommodation sales down by 61% and Food and Beverage sales dropping 86%. Quite apart from the comparison with what had been business as usual in 2019, for the majority of this quarter the country was in a further lockdown, which inevitably curtailed Whitbread’s ability to recover.
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At the same time, the company could be turning something of a corner. Between mid-May and mid-June, accommodation sales had improved to a negative figure of 27%, and Food and Beverage to 25%. Meanwhile, occupancy levels in this brief period were 74%, ahead of the 55% figure the company had previously quoted as being the breakeven profit point.
In its other major market of Germany, 19 of its 30 hotels are now open. The pipeline currently stands at 73 hotels and 13500 rooms, leaving much room for growth before Whitbread can attain its estimate of around 60000 rooms, thus strengthening its offering.
In the meantime, the company’s £1 billion rights issue last year will keep the wolf from the door. This boost to the balance sheet, alongside the group’s largely freehold estate, gives Whitbread the cushion of financial resilience which places the company in a stronger position than many of its rivals, with the net debt figure currently standing at a manageable £71 million.
Although there has been a steady return of consumers on business travel, this remains an area of concern for the industry generally, following the seamless transition to the likes of Zoom and Microsoft Teams during the pandemic. This could possibly have a lasting impact on the viability of business travel, and in any event is likely to lead to less of the previously costly yet popular form of face to face communication.
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In all, Whitbread is well-positioned at the cusp of what could be a return to some sort of normality. The share price performance is reflective of the improving backdrop, having risen by 39% over the last year as compared to a hike of 15% for the wider FTSE 100 index. By the same token, however, the company still has some way to go to recapture former glories and the price remains down by 19% over the last two years.
Nonetheless, these positively renewed prospects are also underlined by the current market consensus of the shares as a 'strong buy'.
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