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Whitbread - strong Q1, positive outlook

First quarter trading was ahead of expectations, as like-for-like (LFL) sales grew 10.8% from pre-pandemic levels.

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First quarter trading was ahead of expectations, as like-for-like (LFL) sales grew 10.8% from pre-pandemic levels. That was driven by market outperformance from Premier Inn UK and a stronger than expected recovery in the German market, following the easing of restrictions.

Costs are expected to rise by £20-£30m in the current year, as the group increases investment in staff, refurbishments, and IT. Despite this, margins in the UK are still expected to rise.

Alison Brittain, CEO, said: ''This impressive Q1 performance together with improved visibility into Q2, gives us increased confidence in delivering a strong first half and remaining ahead of the market for the rest of the year.''

The shares rose 3.5% following the announcement.

View the latest Whitbread share price and how to deal

Our view

Premier Inn owner Whitbread is capitalising on a consumer that's getting back out and about despite a cost-of-living crisis. UK accommodation sales remain well ahead of pre-pandemic levels and crucially performance is ahead of the broader market. That's testament to the Premier Inn brand and a price point that's accessible to consumers in tough conditions.

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. Additional costs in the region of £20-£30m are expected this year to keep up with rising wages, new IT systems and hotel refurbishments. Good news then that £140m of cost savings are in the pipeline, £40m of which is expected to be delivered this year

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

Whitbread's 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. Occupancy is improving, 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 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 Whitbread as well-placed to benefit from the return to normalcy. Demand for UK hotel rooms looks steady, and the German market should continue to recover from here and offers a future growth driver. The group trades below its 5 year average valuation, a reflection of the near term challenges with rising costs and the potential for consumer behaviour to shift with a recession looming. (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.

First Quarter Trading Statement (all comparisons against 2019 levels, on LFL basis)

UK sales were 10.8% higher, with accommodation sales growth of 21.3% more than offsetting food & beverage which was 7.6% lower. The group's hoping new menus and marketing can help push food & beverage sales higher over the year. Revenue per available room was up from £36.72 in the previous quarter, to £55.48. Occupancy stood at 82.6% over the period.

In Germany, sales were 12.1% higher with double digit growth across both accommodation and food & beverage. Following the easing of restrictions, occupancy rose to 57.1% with more mature hotels performing ahead of the market. Revenue per available room was up from £14.60 in the previous quarter, to £29.78.

The group has replaced its old £850m line of revolving credit with a new, 5-year facility, worth £775m.

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
Senior 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: 15th June 2022