ii view: Premier Inn owner Whitbread bets on German growth

First-quarter trading update 30 May

• Total group sales up 1% to £739 million
• Total UK sales unchanged
• Total German sales up 15%

Guidance:

• On course for the German business to breakeven during the calendar year 2024

Chief executive Dominic Paul said:

“With significant potential in both the UK and Germany, supported by the structural reduction in supply and our asset-backed balance sheet, our strategic plans are set to deliver a step change in our performance."

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ii round-up:

Whitbread (LSE:WTB) is the largest hotelier in the UK. Premier Inn outlets give customers access to more than 85,000 rooms across the UK and Ireland in over 850 hotels. 

Its Food and Beverage (F&B) restaurant brands include Beefeater, Brewer’s Fayre, and Cookhouse Pub. 

The FTSE 100 opened its first Premier Inn in Frankfurt, Germany in 2016 and now has 59 open hotels or over 10,500 rooms with a further 6,000 rooms in the pipeline.

For a round-up of this this latest trading update announced on 18 June, please click here.

ii view:

Tracing its history back to 1742, Whitbread today serves over five million customers every month. Employing over 38,000 people, accommodation generates its biggest slug of sales at almost three-quarters, with food and drink the balance. Geographically, the UK and Ireland dominate, with German revenues now growing to 7%. Competitors include Travelodge, Accor SA (EURONEXT:AC) and even pub chain Wetherspoon (J D) (LSE:JDW) with a select number of pub attached hotels.   

For investors, elevated borrowing costs and squeezed consumer incomes will be hindering customer bookings and spending at its restaurants. Costs such as wages have increased, the weather and the timing of bank holidays can impact performance, while Whitbread lacks the geographical diversity of other players such as InterContinental Hotels Group (LSE:IHG).

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To the upside, expansion of room numbers both in the UK and Germany continues, with a small operation in the Republic of Ireland also offering expansion potential. A likely breakeven and move into profit for the relatively new German business is on the horizon. A new efficiency programme to save £150 million over the next three years is being pursued, while a forecast dividend yield of 3.3% is supplemented by ongoing share buybacks.  

In all, and while some caution looks sensible, a focus on customer value in tough economic times and a consensus analyst estimate of fair value above £39 per share should be sufficient to keep long-term fans happy.  

Positives: 

• Expanding in both the UK and Germany
• Credit rating recently upped to BBB from BBB-

Negatives:

• Lacks the geographical diversity of other hotel operators
• Uncertain economic outlook

The average rating of stock market analysts:

Buy