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Whitbread - sales recovering, guidance unchanged

Nicholas Hyett, Equity Analyst | 17 June 2021 | A A A
Whitbread - sales recovering, guidance unchanged

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Whitbread plc Ordinary 76 122/153p

Sell: 2,682.00 | Buy: 2,685.00 | Change 21.00 (0.79%)
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In the 13 weeks to 27 May, like-for-like (LFL) sales were down 71% from the same period in 2019. That reflects government restrictions on travel and overnight stays.

98% of UK hotels are now open and the group has seen "encouraging" trends since then 17 May, when overnight stays were permitted. Between 17 May and 14 June, accommodation sales are down 27.3% reflecting both slightly weaker pricing and occupancy of 74.2% (break-even is 55%).

Guidance for the full year remains unchanged.

The shares were up 4.7% following the announcement.

View the latest Whitbread share price and how to deal

Our view

As the owner and operator of the Premier Inn hotel chain, the past year's stay-at-home orders have hurt Whitbread. Even when the group's hotels and restaurants were open, occupancy was well below historic levels. But there are finally some signs of green shoots.

Pent-up demand is expected to unleash a staycation boom in the UK this summer, which will benefit the 15% of Whitbread's portfolio that's scattered around costal holiday destinations. We got a preview of what summer staycation demand looks like when restrictions were lifted last year, and it was barely enough to cover costs. Occupancy was 51% in August and 58% in September.

However, this year it looks like uncertainty regarding air travel could push even more Britons to the seaside. Between 17 May and 14 June, occupancy was above 70%.

The pandemic forced Whitbread to significantly cut costs to cope with the sudden drop in reservations. The leaner cost-base means the group needs 55% occupancy levels in order to break even. That will help Whitbread make the most of this summer's demand resurgence, but we're mindful that the group may struggle to scale up occupancy without spending more on things like staff, water and electricity.

Owning its hotels, rather than leasing them, takes some of the pressure off as the group's rent payments are lower than they would otherwise be. But a sizeable property portfolio means the company is shouldering a significant quantity of debt.

While a summer staycation boom is a good first step toward normalcy, we think large events and business travel are necessary for the group to recover in earnest. But between the £1bn June rights issue and £550m worth of Green Bonds issued in February, the balance sheet is in a comfortable position as long as leisure demand continues to pick up.

We also note that Premier Inn is the market leader in budget hotels in the UK. Current conditions may force smaller competitors out of the market, leaving it with a potential competitive advantage when the dust settles - a trend already reflected in the group's growing market share.

If this is sustained Whitbread could offer an attractive opportunity. The shares trade on a price to book ratio of 1.73, which is a substantial discount to the ten-year average. However, the group also faces serious risks, especially concerning the return of business travel, so the shares should be handled with caution.

Whitbread key facts

  • Price/Book ratio: 1.73
  • 10 year average Price/Book ratio: 2.52
  • Prospective yield: 0.4%

All ratios are sourced from Refinitiv. 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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First Quarter Results (all comparisons against 2019 levels, on LFL basis)

Lockdown restrictions in place for the majority of the quarter meant Accommodation sales were down 62.2% while Food & Beverage sales declined 86.2%. The average room rate fell 33.4% to £40.94 and occupancy stood at 42.2%.

UK sales fell 70.9%, driven by an 62.1% decline in Accommodation and a 86.2% fall in Food and Beverage sales. The group continued to improve its market share, up 6.4 percentage points in the quarter. Trading in the current period has been improving with demand on the rise in most areas bar central London and airport locations.

Revenue in Germany was down 82.1% on a like-for-like basis. But when the new hotels are taken into account, the division posted a 4.1% gain as Accommodation sales rose 8.8%. Occupancy for the quarter was 14.6%. The group currently has a committed pipeline of 73 hotels in the region with 30 operational and 19 open for business as at the end of the quarter.

Find out more about Whitbread shares including how to invest

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. 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.

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