ii view: Premier Inn owner Whitbread restarts the dividend

A return to profit but management warns of rise in cost inflation. We assess prospects. 

Full-year results to 3 March

• Revenue up 189% to £1.7 billion
• Pre-tax profit of £58.2 million, up from a loss of £1 billion the previous year
• Dividend of 34.7p per share (Previous year: nil)
• Net debt including lease liabilities up 8.7% to £3.56 billion

Guidance:

• Expects full-year cost inflation to be around 8% to 9%, 1% higher than previously forecast

Chief executive Alison Brittain said:

“We hold a uniquely advantaged position in the UK market as the largest operator with the strongest brand, alongside our direct distribution, best-in-class operating model and broad customer reach. Furthermore, backed by our strong balance sheet, we have invested through the cycle, in new hotels, Premier Plus rooms and high levels of refurbishments, ensuring we maintain our stand-out customer proposition in the budget sector. 

“This, combined with the evidence of an acceleration of supply contraction within the independent hotel sector, presents Premier Inn with the opportunity to accelerate its market share gains, an opportunity on which we are fully capitalising as we continuously strengthen our customer offer.”

ii round-up:

Premier Inn owner Whitbread (LSE:WTB) returned to profit over its latest financial year and restarted the dividend payment, but it did warn that cost inflation would by higher over the year and ahead than previously expected. 

Pre-tax profit of £58.2 million compares to a loss of £1 billion the previous year as pandemic restrictions lifted. A restarted dividend payment for the year of 34.7p contrasts with no payment the year before when it was suspended during the pandemic and 32.7p per share the year before that. 

Whitbread shares rose by more than 3% in UK trading, leaving them down around 5% year-to-date. That compares to a gain of 8% for rival InterContinental Hotels (LSE:IHG) during 2022 and a fall for the FTSE All Share index of around 1%.  

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Whitbread operates over 800 hotels. Its restaurant brands include Beefeater, Brewer’s Fayre and Cookhouse Pub. 

Trading for the first seven weeks of the new financial year was good, with UK sales up 17.3% compared to the same pre-pandemic period.  

The occupancy rate for its much smaller but growing number of German hotels over the same seven weeks came in at 51.2%, in-line with the broader market. Losses before tax are now forecast to be between £60 million and £70 million, reflecting the slower recovery of the hotel market in Germany. That compares to analyst estimates for nearer to £20 million. 

Full-year cost inflation is now expected to be around 8-9%, up 1% from its previous estimate, although the hotelier expects to largely offset the higher levels of inflation through cost efficiencies, estate growth and pricing power. 

ii view:

Whitbread’s Premier Inn outlets give customers access to more than 80,000 UK rooms. It is the largest hotelier in the UK. It opened its first Premier Inn in Frankfurt, Germany in 2016. Along with its open German estate of 37 hotels it also has a further 41 hotels in the pipeline. Starting life as brewery company over 250 years ago, Whitbread today generates around two-thirds of its sales from its hotel operations and the remaining third from its pubs and restaurant outlets. 

For investors, rising costs, supply chain pressures and a tight hospitality labour market offer challenges. The drag from the pandemic continues to hinder its German operation, while the backdrop for consumers more generally has become more difficult given the cost-of-living crisis. 

On the upside, Whitbread is expected to continue taking market share, a cost saving programme remains ongoing and a dividend has been recommended. In all, and with the company’s value offering likely to remain appealing to inflation squeezed UK and German consumers, room for longer term optimism looks to exist. 

Positives: 

• German expansion
• Restarted dividend payment 

Negatives:

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

The average rating of stock market analysts:

Buy