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Whitbread - dividend reinstated as profits return

Full-year revenue rose from £589m to £1.7bn, beating market expectations and 17.8% down on pre-pandemic levels...

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Full-year revenue rose from £589m to £1.7bn, beating market expectations and 17.8% down on pre-pandemic levels. There was strong recovery across the portfolio as the group lapped the previous year which was heavily impacted by restrictions.

Underlying cash profit (EBITDA) improved from a loss of £194.9m to a profit of £472.6m, 37.2% down on pre-covid levels.

Cost inflation is running higher than expected, at around 8-9%. However, the group aims to offset this through cost reduction, estate growth and increased prices.

The board announced a final dividend of 34.7p and intends to reinstate its dividend policy to grow dividends broadly in line with earnings. Although dividends are variable and not guaranteed.

The shares were up 3.1% in early trading.

View the latest Whitbread share price and how to deal

Our view

Premier Inn owner, Whitbread, is seeing the recovery take shape with profits back and the outlook starting to look positive. The second half of the year saw UK accommodation sales surpass pre-pandemic levels in all but one month, which felt the effects of Omicron restrictions. Outperformance of the wider UK hotel market continued as well.

The revenue recovery in UK hotels will come as a major relief, since the group's cost base is relatively inflexible. Hotel leases and debt interest need to be paid whether the rooms are in use or not, while maintenance work cycles continue to tick round.

That's unlikely to get any easier with supply disruption and labour shortages leading to cost inflation throughout the economy, but particularly in hospitality. The group's targeting £140m of cost savings, with larger hotels, improved procurement, and increased use of technology. £40m of which is expected to be delivered this year, which should help offset the rising costs of inflation.

However, management have ambitions beyond simply getting the group back to where it was in 2019.

Whitbread has continued to open new hotels in the UK, and with smaller competitors more likely to have shut during the pandemic the group will hope that gives it further room for expansion. Meanwhile German expansion is gathering pace - with a healthy pipeline of rooms to be opened. There's work to be done improving occupancy, which has been hurt by restrictions that were only removed in April this year - but the group now has a platform from which to drive growth.

Longer term the group's balance sheet is a source of strength. Owning, rather than leasing, the majority of its hotels gives it assets to leverage if necessary. Despite that, the group is running a net cash position, excluding leases, following a £1bn rights issue last year. The positive outlook and balance sheet strength mean the dividend's back on the table, though as we've seen it's far from guaranteed.

Generally, we see Premier Inn as well-placed to ride benefit from the return to normalcy. Demand for UK hotel rooms looks to be improving and the German market should start to recover from here. Rising costs and the potential for consumer behaviour to shift in light of rising costs of living mean the group trades a touch below its 5 year average valuation. (We're using a 5 year horizon instead of 10, because the sale of Costa in January 2019 was a significant change in assets, which distorts the larger picture).

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.

Full Year Results

Total UK sales (98% of total sales) rose from £577.4m to £1.7bn, but like-for-like (LFL) sales were 23.5% down on pre-pandemic levels. Premier Inn UK continued to be impacted by restrictions in the first quarter but saw a strong recovery from the second quarter on. In the second half of the year, total UK sales marginally exceeded pre-pandemic levels as accommodation sales were 7.9% ahead. Occupancy for the year was 68.3%, compared 76.3% pre-pandemic, with an average room rate of £56.67, down 7.9%. The division reported underlying cash profit of £489.8m.

In Germany the group reported sales of £35.2m, up from £11.8m pre-pandemic. That reflects new hotel openings, which have gone from 6 to 35 over the period. Occupancy fell from 58.3% pre-pandemic to 40.7%, with average room rates of £40.53 compared to £69.47. The region reported underlying cash profit of £13.7m.

Whitbread has committed to adding 8,332 new rooms in the UK and 8,454 in Germany.

Free cash flow in the half came in at £308.3m, a significant improvement on the £608.5m outflow reported last year, reflecting increased profits. The group finished the half with net cash of £140.5m, excluding lease liabilities of £3.4bn. That compares to net debt of £46.5m a year ago, excluding £3.2bn of lease liabilities.

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
Matt Britzman
Equity Analyst

Matt is an Equity Analyst on the share research team, providing up-to-date research and analysis on individual companies and wider sectors.

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Article history
Published: 28th April 2022