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Whitbread returns to profit

Progress has been made after the relaxation of accommodation restrictions, but weakening consumer confidence casts a pall over good post-period trading
Whitbread returns to profit
  • Trading improved from the second quarter
  • Higher-than-expected cost inflation forecast for this year

Whitbread (WTB) demonstrated that it is making solid headway on its path to recovery, in a financial year still impacted by lockdown closures. A return to statutory profit was greeted cheerily by the market, with the shares up by 4 per cent. Those investors who enjoy tucking into a meal at one of the company’s Premier Inn hotels can now also get their teeth stuck into a reinstated dividend.

Matt Britzman, equity analyst at Hargreaves Lansdown, said that the return of the dividend “sends a clear message to markets that sentiment is vastly improved”.

With overnight stays only permitted from May 2021, the first quarter of FY 2022 was a struggle. But from that point on, occupancy rose – the rate soared by 3,890 basis points to 68.3 per cent for the year for UK Premier Inns. This took UK revenue up 189 per cent to £1.7bn in statutory sales, but this was still a drop of almost a fifth against the pre-pandemic period.

Trading after the year-end was promising for accommodation – for the 7 weeks to 21 April, UK Premier Inn results were 30 per cent ahead of the (pre-Covid) 2020 financial year. But food and beverage sales at the hotel brand lagged 5 per cent behind the same metric.

Peel Hunt analysts noted of the post-period results that “some of the strong performance may reflect the release of pent-up demand and that consumer confidence is weakening”.

That is an appropriate point to make. But given that the shares currently look a little expensive – the broker has them trading on 36 times forward 2023 earnings, which is around the five-year consensus average – and with higher cost inflation of 8-9 per cent now expected by management for this year, we are sticking with our hold recommendation for the time being. 

Last IC view: Hold, 3,242p, 26 Oct 2021

WHITBREAD (WTB)   
ORD PRICE:2,858pMARKET VALUE:£5.77bn
TOUCH:2,8257p-2,859p12-MONTH HIGH:3,467pLOW: 2,384p
DIVIDEND YIELD:1.2%PE RATIO:135
NET ASSET VALUE:2,039pNET DEBT:86%
Year to 03 MarTurnover (£bn)Pre-tax profit (£bn)Earnings per share (p)Dividend per share (p)
20182.010.43188101
20192.050.2296.799.7
20202.070.2812532.7
20210.59-1.01-482nil
20221.700.0621.134.7
% change+188---
Ex-div:26 May   
Payment:1 Jul