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Weaker UK demand at Whitbread

With the Costa sale complete, the hotel operator’s growth has been hampered by “acute” uncertainty
Weaker UK demand at Whitbread

With the sale of Costa completed, Whitbread (WTB) is now a “focused hotel business” centred around Premier Inn. Operating in a “challenging environment” of dampened business and leisure confidence, weaker than expected UK demand for FY2019 saw like-for-like accommodation sales decline by 0.6 per cent whilst revenue per available room (RevPar) fell by 1.7 per cent. This domestic weakness has persisted at the regional level during the new financial year and with Premier Inn's high degree of exposure, RevPar is down 4.4 per cent.

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Despite the "acute" political and economic uncertainty, the group believes the strength of its business model affords greater long-term resilience. Chief executive Alison Brittain contends that the growth of the business is predicated "not on its economic but its structural position". The UK market has more than 700,000 rooms, just under half of which are operated by small, independent businesses. Premier Inn is likely to take market share faster from struggling independents during a downturn. The group sees the potential to have at least 110,000 rooms in the UK, up from its current network of around 76,000 rooms (30,000 more than its nearest competitor), a committed pipeline of 13,000 rooms and an industry-leading level of 97 per cent direct bookings. The group is diversifying its offering with format innovations 'hub' and 'Zip' targeting new customers.

There is long-term potential to replicate Premier Inn's UK success in Germany, which has a larger and significantly more fragmented travel market. Opening a second Premier Inn in Hamburg in February and acquiring 19 hotels from Foremost Hospitality, the group has 7,000 rooms in the committed pipeline and plans 20 hotels openings by 2021. Expansion has been costly, however, producing an £8m loss for FY2019, expected to widen to £20m in 2020.

Disposal costs relating to Costa were largely behind the plummet in statutory pre-tax profit. However, using the £3.9bn proceeds, the group intends to return up to £2.5bn to shareholders, with a £2bn tender offer proposed for June.

Numis expects adjusted pre-tax profit of £436.7m and EPS of 258p for FY2020, rising to £471.5m and 278p in 2021.

WHITBREAD (WTB)   
ORD PRICE:4,480pMARKET VALUE:£ 7.88bn
TOUCH:4,480-4,484p12-MONTH HIGH:5,162pLOW: 3,870p
DIVIDEND YIELD:2.2%PE RATIO:39
NET ASSET VALUE:3,528p*NET CASH:£2.58bn
Year to 1 MarchTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20152.6146420582.15
20162.9248821690.35
20173.1151523195.80
2018**2.01427188101.15
20192.0526011599.65
% change+2-39-39-1
Ex-div:30 May   
Payment:05 Jul   
*Include intangible assets of £175.6m or 100p a share, **Restated to reflect Costa Coffee as discontinued operation