ii view: Whitbread wants to be world’s best budget hotelier

Third-quarter results to 28 November

• Total revenue down 2% to £763 million
• Groupwide Revenue Per Available Room (RevPAR) down 2.5%
• UK Premier Inn RevPAR down 3%
• Total German accommodation sales up 23%

Chief executive Dominic Paul said:

"The structural shift in UK supply has meant that Premier Inn is continuing to sustain the significant gains made since the pandemic. Whilst forward visibility remains limited, the favourable supply backdrop, together with our brand strength and commercial initiatives, means we are confident that we can continue to outperform the market.

"In Germany, we continued to perform strongly in what is an important trading period. As a result, we remain on track to reach profitability on a run-rate basis this year which is a key milestone and gives us real confidence as we continue to build momentum towards becoming the country's number one hotel brand."

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ii round-up:

Whitbread (LSE:WTB) via the Premier Inn brand is the UK’s largest hotelier. Servicing a UK population of around 67 million people, the FTSE 100 company operates over 85,000 rooms with a target of 125,000 rooms in its sights. 

Its Food and Beverage (F&B) restaurant brands include Beefeater, Bar + Block, Brewer’s Fayre, and Table Table. 

Whitbread began business in Germany in 2016. It currently has over 10,000 rooms with a German population of 83 million leaving it currently targeting a portfolio of 20,000 rooms. 

For a round-up of this this latest trading update announced on 16 January, please click here.

ii view:

Tracing its history back to 1742, the group’s ambition today is to be the world’s best budget hotel. The FTSE 100 company employs over 38,000 people, with accommodation generating its biggest slug of sales at around three-quarters and food and drink the balance. Geographically, the UK and Ireland dominate, with German revenues now around 7%. Competitors include Travelodge, Accor SA (EURONEXT:AC) and Holiday Inn owner InterContinental Hotels Group (LSE:IHG). 

For investors, squeezed consumer incomes and the end of a post pandemic boom are seeing UK revenues drift lower. Disruption to restaurant operations from format changes and in conversions to hotel rooms are seeing Food and Beverage sales suffer. The weather and the timing of bank holidays can impact performance. Net cash had previously fallen to net debt, while Whitbread lacks the geographical diversity of other players such as InterContinental.

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More favourably, a move towards breakeven in Germany is on the horizon, with its marketplace estimated to be 40% bigger than the UK, fragmented and with no clear market leader. Initiatives as part of a five-year growth plan include increasing adjusted pre-tax profit by at least £300 million between 2025 and 2030. Whitbread is pursuing cost savings of £50 million per year on average to 2030, while the shares currently sit on a forecast dividend yield of around 3.4%. 

In all, and despite continued risks, a consensus analyst estimate of fair value above £37 per share suggests continuing optimism in the City.   

Positives: 

• Expanding in both the UK and Germany
• Asset-backed balance sheet

Negatives:

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

The average rating of stock market analysts:

Buy