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Whitbread - strong growth in all categories

In the first quarter, Whitbread has seen like-for-like sales growth of 15%.

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In the first quarter, Whitbread has seen like-for-like sales growth of 15%. Accommodation sales in the UK were up 16%. This was driven by an equivalent growth in revenue per available room (RevPAR), largely due to increases in the average cost of a room, with London materially outperforming the regions.

UK RevPAR continues to outperform the wider market and is now 40% ahead of pre-pandemic levels. Food and beverage sales grew 9%, benefitting from commercial initiatives put in place at the end of last year.

RevPAR in the less mature German estate grew 54.8% as market demand recovered. Here the Group remains on track to open between 1,000 and 1,500 rooms in the current financial year.

Whitbread's confidence in the full-year outlook is underpinned by strong forward bookings in both the UK and Germany.

The shares were flat 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. That's helped drive average revenues generated by each room 40% 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.

Momentum for the current year is building nicely but Premier Inn may 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 reproduce 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. We admire the ambitious roll-out plan and the break-even point doesn't seem too far out now, 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 intact. 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 and supports ongoing share buybacks. As ever no pay-outs to shareholders 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: 22nd June 2023