Whitbread still a 'buy' despite sluggish UK trading

(Sharecast News) - Shore Capital has reiterated a 'buy' rating for Whitbread despite a "continued sluggish backdrop" for the hotel and hospitality business in the UK, highlighting solid trading in Germany and a strong outlook for profits and shareholder returns.

Whitbread shares were lower on Thursday after the company reported challenging conditions in the UK in its first quarter ended 29 May, with revenue per available room down 2% due to a softer performance in London (-2.4%), and food and beverage sales 16% lower than last year.

However, according to Shore Capital analyst Greg Johnson, the company's German operations remain the "bright spot" with RevPAR up 12% during the period, and food and beverage sales up 22%.

Johnson estimates a 1% fall in RevPAR across the business overall over the full fiscal year, and said: "Q1 trends are tracking modestly behind this in the UK, we are minded maintaining our full year estimates, especially noting the positive momentum in Germany."

After a recent rally in the share price, Whitbread now trades at 14 times full-year earnings and an EV/EBITDA multiple of eight (excluding leases), Johnson said.

"Management have set out a roadmap to add over �300m to the bottom line and return of �1bn of cash in the medium term, which on our estimates could increase EPS to comfortably above 300p. This opportunity is yet to reflected in the share price, although a return to UK RevPAR growth is the likely key catalyst to a rerating."

The stock was down 0.7% at 2,770p by 1150 BST.