Whitbread roars back

Full-year results for hospitality giant Whitbread (WTB) showed the powerful impact of a return to reasonable levels of hotel occupancy after a long recovery period in the aftermath of the pandemic. For example, in the company’s core UK market, revenue per available room leapt by 55 per cent compared with 2022 to just shy of £60. The results clearly showed that guests have acquired a renewed appetite for short breaks that typically involve a stay at a Premier Inn (typically weddings and stag/hen parties) but which could also be linked to a reviving UK inland holiday market. This, combined with an attractive share buyback programme of £300mn this year and hiked dividend, explains the solid run the shares have enjoyed since the start of the year.

The results showed definite signs of operational gearing in the UK business as margins grew exponentially during the year from 4.5 per cent to 19.6, despite the impact of inflation on staff costs, and there was a corresponding improvement on return on employed capital to 12.9 per cent. Total UK revenue was up 50 per cent to £2.5bn. Whitbread looks set to keep investing in its UK estate and expects to add between 1,500 to 2,000 rooms during this financial year, with total capex spending at the group level expected to be between £400-450mn. A slight crinkle was the performance of the food & beverage division, with the company’s standalone restaurants and pubs generating an impairment charge of £54mn as inflating costs and penny watching consumers affected the performance.

Whitbread hopes that Germany highly fragmented hospitality market – a plethora of mid-market 'Mutti und Pappi' hotels dominate the trade – will provide the company with its biggest source of growth as its estate there matures. The company currently has 51 hotels open with about £1bn of committed capital. Capital spending meant the German business posted a loss of £50mn on revenue of £118mn, with revenue per room of £37.

Whitbread’s shares have rallied by 27 per cent since the start of the year and vindicate the view that its growth profile was being under-priced (Buy, 3,076p, 2 Feb 2023) in all the doom and gloom at that point. The results showed the value of its operational gearing, which also explains the high rating of 37 times consensus forecasts for 2024. Given Whitbread’s excellent operational execution, we think running the profits on our buy idea is a decent strategy. Buy.

Last IC view: Buy, 3,076p, 2 Feb 2023