Bernstein upgrades Whitbread to 'market perform', says 5-year plan is 'realistic'

(Sharecast News) - Bernstein upgraded Whitbread on Tuesday to 'market perform' from 'underperform' and lifted the price target to 2,400p from 2,100p as it said the company's new five-year plan was "realistic" and it's time to adopt a "more constructive stance".

Bernstein said it has stress-tested the new five-year plan and concluded it is realistic. "The Accelerating Growth Plan (i.e. restaurant exit) now includes all branded restaurants, and we expect it to deliver low double digit percentage return on investment despite the extension to sites less suited for rooms conversion," it said.

"The updated German network expansion limits growth to 18,000 rooms (versus the prior 20,000) - still ambitious but now more achievable. Under conservative cost assumptions for the UK network expansion, we think it can achieve an ROI in the mid-high teens."

Bernstein also said trading at the Premier Inn owner remains healthy, with year-on-year growth despite lapping comps last summer. "We would also view the likelihood of business rates relief or VAT reduction at October's Budget as higher than that of any new sector-specific tax," it said.

"That said, some downside risks persist: fuel inflation could re-emerge next year as hedges roll off, while the introduction of the UK's first major tourism levy in Edinburgh (5%) suggests hotels may initially need to absorb some of the cost rather than pass it through to guests."

Explaining its decision not to upgrade the stock back to 'outperform', Bernstein highlighted concerns around near-term valuation, cost inflation and growing risk from tourism levies.

At 14x 2027/8 earnings per share for limited growth until 2030, Bernstein said it struggles to see much upside to the shares unless the Budget in October provides a meaningful earnings upgrade.

At 0950 BST, the shares were up 1.6% at 2,476p.