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Whitbread - closed for Q1 but reopening for Q2

Emilie Stevens, Equity Analyst | 7 July 2020 | A A A
Whitbread - closed for Q1 but reopening for Q2

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No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Whitbread plc Ordinary 76 122/153p

Sell: 3,327.00 | Buy: 3,329.00 | Change -7.00 (-0.21%)
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The lockdown meant Whitbread's first quarter sales were 79.4% lower than last year. The group has started reopening its hotels and restaurants, with the majority of the estate expected to open by the end of July.

Whitbread said it was too early to draw any trends from early bookings. However, regional tourist destinations are said to be seeing good demand while cities, including London, remain subdued.

The shares rose 2.2% following the announcement.

View the latest Whitbread share price and how to deal

Our view

Whitbread survived both the Napoleonic and World Wars, but COVID-19 may well rank among the biggest threats the group has ever faced.

Today the group operates the Premier Inn hotel chain, problematic when lockdown forced everything to close. Even when the group's hotels and restaurants are open again it's likely to be a long road to recovery. Business and leisure travel tends to fluctuate with the fortunes of the economy but the coronavirus is a particularly travel acute crisis.

We're in what's likely to be the lowest point for European travel for a generation. Early signs show that this could bode well for the group's regional hotels, as the UK opts for staycations this summer, but it's no substitute for international and businesses travellers visiting the UK's major cities.

Owning and operating hotels is an expensive business to be in and running costs are pretty fixed regardless of how many guests show up. Once your costs are covered, each additional guest is almost pure profit. This is great during the good times, but a nightmare when conditions sour.

With revenues shut off, managements doing everything they reasonably can to reduce cash spending. The measures are extensive and included furloughing 27,000 members of staff.

Owning its hotels rather than leasing them helps, as the group's rent payments are lower than they would otherwise be, although they're still substantial. Although a sizeable property portfolio means the company is shouldering significant quantities of debt.

Whitbread's June rights issue, raised a further £1.0bn cash, and provides the group with significant breathing room. Whether that's used to weather the current storm or grow market share, as rival's struggle, remains to be seen. But earlier this year the group announced ambitions to nearly double the number of rooms, so we expect it's on the lookout for opportunities.

The shares currently trade around 1 times book value, someway below the longer run average. An investment decision at the moment depends on if you think international and business travel is likely to recover to its former self and if so how quickly. As things stand we remain cautious about the world that Premier Inn's are reopening to.

Whitbread key facts

  • P/E: Whitbread is expected to be lossmaking this year so it is not possible to give a PE ratio
  • 10 year average P/E: 16.19
  • Prospective yield: 0.85%

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Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

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Q1 Trading Update

Whitbread kept 39 UK hotels open throughout lockdown to house key workers, this allowed the group to develop an operating model for socially distanced hotels.

With lockdown restrictions now easing, over 270 UK hotels and 24 restaurants have reopened. In Germany all 19 hotels are open, including 13 new hotels rebranded to Premier Inn over lockdown.

On 10 June Whitbread raised £1bn through a rights issue. The group sees the additional cash as a way for it to withstand a long period of low revenue and take advantage of opportunities to grow market share as they arise.

Find out more about Whitbread shares including how to invest

Hargreaves Lansdown's Non-Executive Chair is also a Non-Executive Director of Whitbread.

Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.