Stock of the Week: Whitbread

Hotel, restaurant and pub chain owner has just posted a loss of £1bn, but is expecting a rebound from UK holidays and relaxation of lockdown measures

James Gard 14 May, 2021 | 9:53AM
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With restaurants set to re-open from Monday, we asked our Twitter followers to nominate a listed food chain as stock of the week. They’ve chosen the first item on the menu, Whitbread (WTB), which owns the likes of Beefeater and Brewer’s Fayre restaurants. After the latest winter lockdown, England has been slowly re-opening in recent months, with pub and restaurant goers able to eat and drink outside from April 12 but only do so inside from May 17. Will punters rush back to their favourite hostelries from next week, giving a much-needed boost to companies like Whitbread, one of the biggest companies in this industry?

 

Whitbread’s portfolio, which includes restaurants, pubs, and leading hotel chain Premier Inn, is tied to the smooth progress of the “roadmap” out of lockdown more than most. It should benefit from this easing of restrictions on indoor social mixing, as well as strong demand from domestic holidaymakers. Last year saw a big rise in “staycations” and that trend is expected to intensify this year amid restrictions on international travel – the Government’s “green list” has just 12 destinations you don’t need to quarantine on return from. Uncertainty reigns about where and when you can fly, so at this stage people who likely to plan ahead may have already booked a cottage or hotel in the UK.

Whitbread share price chart

 

Whitbread is expecting strong demand this summer from hotels it owns in coastal towns, which make up 15% of the company’s 800+ UK hotels. “We expect a significant bounce in leisure demand in our tourist locations during the summer, followed by a gradual recovery in business and event-driven leisure demand,” says chief executive Alison Brittain. The caveat is that these hotels need to have a 55% occupancy rate for Whitbread to break even, the company says, and the last August this was 51%. For the full year, occupancy was just under 30% and in the prior year, the one not affected by coronavirus, this rate was 76%.  “Although management is expecting staycations to ramp up demand in the UK, it may not be enough to push the group over the line,” says Laura Hoy, equity analyst at Hargreaves Lansdown. Still, the upside of the recent economic disruption, for Whitbread at least, is that there were will be fewer competitors around: in the most recent financial year, its market share went up by nealy 7 percentage points.

 

In terms of the bottom line, Whitbread’s latest full-year numbers reflected the full impact of closed resturants, hotels and pubs: total sales were down 71% year on year and the company lost £1 billion before tax, compared with a profit of £280 million the previous financial year. The company has taken a number of cost-saving measures to ensure that this financial year is more profitable: these include scrapping the dividend, which is not expected to be restarted until March 2023. “The Board hopes to return to paying dividends again following the normalisation of the Group’s financial position and performance,” it said. Whitbread shares have unsurpisingly yet to regain pre-pandemic levels above £40, but have rallied strongly in the last six months to above £30 – and are up 40% on this time last year as economically sensitive stocks have rallied.

 

Which funds hold Whitbread? The company features in a range of special situations, recovery and value portfolios. The stock makes up nearly 5% of Jupiter UK Alpha, run by respected value manager Richard Buxton, which has a Morningstar Analyst Rating of Silver.

 

Whitbread also forms part of a number of Morningstar indices, including Morningstar Global Consumer Sectors, which rose by 18% in 2020, and Morningstar Global Restaurants, which gained 8.66% last year and 2.70% so far in 2021. Whitbread is the 11th biggest stock in the Global Resturants index, one of only two UK listed companies (the other is Compass Group) with such a large weighting. The company is also part of the Morningstar UK Sustainability Dividend Yield Focus index, which features companies that rank highly according to environmental, social and governance factors. It is rated as "Low Risk" by Sustainalytics because of its strong corporate governance. Whitbread issued £550 million of Green Bonds in February this year.

 

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James Gard  is content editor for Morningstar.co.uk