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Whitbread - confident outlook, dividend hiked 43.5%

Whitbread's underlying full year revenues climbed 27% above pre-pandemic levels to £2.6bn.

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Whitbread's underlying full year revenues climbed 27% above pre-pandemic levels to £2.6bn. That reflected growth in Premier Inn, helped by fuller hotels, more rooms on offer and higher prices. This more than offset weakness in food & beverage sales.

Underlying operating profit rose more slowly than revenue, rising 12% to £544m. The slower growth partly reflected higher operating losses in Germany.

Whitbread generated free cash flow of £243.6m. Net debt of £3.8bn, including lease liabilities, was up 29% from March 2020. This largely reflected the extra leases taken on in expanding the hotel estate.

In the first seven weeks of this year UK sales were up 17% compared to last year, with hotels continuing to outperform the wider market. UK cost inflation guidance remains unchanged at 7-8%. In Germany, accommodation sales were up 140% reflecting the smaller size of the German business. Whitbread expects to add between 2,500 and 3,500 rooms across the UK and Germany this year.

The Board has recommended a final dividend of 49.8p, a 43.5% increase on last year. This is alongside a new £300m buyback plan, to be completed in the first half of the current financial year.

The shares were up 3.8% following the announcement.

View the latest Whitbread share price and how to deal

Our view

Whitbread's Premier Inn is now the UK's largest hotel chain and continues to enjoy an enviable brand position in the UK value and mid-range hotel sector. Last year that helped drive average revenues generated by each room 27% higher than pre-pandemic levels.

We're particularly supportive of the increased focus on attracting business customers which now make up about half of Premier Inn's accommodation revenues. This provides both a growth opportunity and extra diversity in the customer base - meaning the group isn't reliant on one type of customer. It's not all good news though. The food and beverage arm has been lagging pre-pandemic levels. Given the squeeze on consumers we aren't surprised. Early signs of a recovery are encouraging but it's too early to tell if that will hold.

Early indications for the current year are positive but in the short-term, Premier Inn will need to pedal harder to sustain growth in the UK particularly as economic headwinds mount.

Looking ahead, Whitbread still sees more to go for in the mature UK and Ireland market, and sees a potential ceiling of 125,000 rooms vs current capacity of about 83,500. It's not the only chain with expansion plans. And we are mindful that too much additional supply could hurt profits if demand doesn't keep pace. But we believe Whitbread is well placed to drive further market share gains.

If Whitbread can replicate Premier Inn's success in Germany, this is potentially a bigger growth opportunity. It has a much smaller footprint here and is yet to turn a profit. About 60% of rooms in Germany are run by private hotels- we think there's opportunity for an experienced hotelier like Premier Inn to establish a foothold. So far in 2023 the German economy is holding up better than expected, but there are likely to be further challenges ahead for the German consumer. We admire the ambitious roll-out plan but it could be a while before Germany makes meaningful profits.

Cost increases are a continuing headwind but so far Whitbread's managed this through robust pricing and cost cutting. The £140m cost saving target to be delivered between 2022 and 2025 remains in-tact.

The balance sheet is also in good health. That's helped by the fact the group owns over half its hotels, rather than leasing them. What's more, its considerable re-investment plans of around £0.5bn for the current year should be fully funded by cash flows. This also helps feed into the group's ability to pay a dividend. As ever no dividends are guaranteed.

We are impressed with Whitbread's continued progress and see long-term potential for both organic growth and further consolidation. The valuation sits below the long-term average and in our view isn't overly demanding. However, the near-term challenges of rising costs and economic uncertainty remain very real. Investors should be prepared for some ups and downs.

Whitbread key facts

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.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. 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 disclosure for more information.

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Written by
Derren Nathan
Derren Nathan
Head of Equity Research

Derren leads our Equity Research team with more than 15 years of experience in his field. Thriving in a passionate environment, Derren finds motivation in intellectual challenges and exploring diverse ideas within his writing.

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Article history
Published: 25th April 2023