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Whitbread - sales growth driven by Premier Inn

Whitbread's like-for-like (LFL) revenue rose 14.9% against pre-pandemic levels in the third quarter.

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Whitbread like-for-like (LFL) revenue rose 14.9% against pre-pandemic levels in the third quarter.

LFL revenue growth in the UK was driven by a 26.6% uplift in accommodation sales which more than offset a 7.6% decline in food & beverage revenues. Premier Inn UK is outperforming the competition with sales 24.1 percentage points ahead of its peers, enjoying both improved pricing and occupancy.

Germany also posted a strong contribution with LFL growth in both accommodation and food & beverage, driving a total increase of 25.9%. Whitbread reiterated full year guidance for Germany of a pre-tax loss between £40m - £50m.

Group full year cost guidance remains unchanged. But for the next financial year Whitbread expects UK costs to be impacted by inflation of 7% -8%.

Whitbread ended the quarter with net cash of £284m, up from the £182m reported in the half year results.

In the first five weeks of the fourth quarter UK total accommodation sales were up 36% over pre-pandemic levels with food & beverage declining 6%. Whitbread expects pricing to remain strong.

For the same period, trading in Germany remains "well ahead" and further expansion is planned with a pipeline of 36 new hotels against a current estate of 45 units.

The shares were up 2.5% in early trading.

View the latest Whitbread share price and how to deal

Our view

Whitbread's Premier Inn is a strong name in the UK value and mid-range hotel sector in our view. This is reflected in a stronger than expected rebound in demand for UK hotel accommodation, which has been driving strong double-digit sales growth for Whitbread's flagship UK Brand. We're particularly supportive of the increased focus on attracting business customers. This provides both a growth opportunity and extra diversity in the customer base - meaning the group isn't reliant on one type of customer.

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 82,700. Against pre-pandemic levels, the UK market has made market share gains in each of the 6 quarters to September 2022, but that rate of growth has been slowing. In the short term Premier Inn will need to pedal harder to sustain growth in the UK particularly as economic headwinds mount. That said early indications for the current year are positive. We believe Whitbread is well placed to maintain its market leading blend of quality and value, and a successful execution of its pipeline could 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. But with Germany likely to enter a recession in 2023 it could still be a bumpy ride.

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.

Margins have taken a hit from inflation but Whitbread is actively managing this, with £40m of cost savings delivered in the last financial year and over £100m of further savings planned over the next three years.

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 over £0.5bn for the current year should be fully funded by cash flows.

The dividend appears well-covered by profits too, and we think there could be scope for shareholder returns to increase in the future. As ever no dividends are guaranteed.

The group trades below its long-term average valuation, a reflection of the near-term challenges with rising costs and the potential for consumer behaviour to shift with a recession looming.

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: 12th January 2023