Can hotel renovations revive struggling stock?
The Whitbread (WTB) share price has been on a downward spiral this year – and fell further after the British hotel group confirmed the departure of chief executive Alison Brittain in 2023.
This means the Premier Inn owner’s share price fell 21% from £31.34 in early January to £24.65 in early trading today on London markets.
But analysts believe now could be an attractive entry point for investors, with the company enjoying strong trading and set to embark on a multimillion-pound investment plan.
Whitbread (WTB) stock price chart
Whitbread’s share price has remained weak in recent months, despite news of a return to profits and better than expected trading.
The company revealed a pre-tax statutory profit of £58.2m for the year ending March 3, 2022 – compared to a loss of £1bn the previous year as sites closed due closures.
It has since seen strong trade in the UK and Germany in the first quarter of 2023, with total accommodation sales 235.6% ahead of the same period last year.
Ahead of pandemic levels
Chief Executive Alison Brittain said first quarter performance was “well above pre-pandemic levels” and the company continued to significantly outperform the market.
“This outperformance is due to a number of factors, including our business and operational focus as well as the strength of our brand and operating model, our direct distribution, our national reach and the accelerated contraction of independent supply,” said she declared.
She highlighted the quality of her 40 German hotels and pointed out that 38 more were in the pipeline.
New boss at the helm
Whitbread confirmed yesterday (June 29) that Brittain would be replaced at the helm next year by Dominic Paul, the current chief executive of Domino’s Pizza Group.
Chairman Adam Frazier said in a statement: “We are confident that Dominic’s excellent track record of growing and transforming consumer brands in the UK and internationally will help lead Whitbread into the next stage. of the development of the group.
However, the news received a lackluster response. In fact, Whitbread’s stock price fell about 3% on the day.
An “instinctive” reaction
Danni Hewson, financial analyst at AJ Bell, attributed the fall to a “gut reaction to unexpected change” and uncertainty.
While noting that the hotel branch was “moving forward”, she said food and drink supply was still trying to get back to pre-Covid sales levels.
“The new boss has more than a few plates to hold up, whether it’s finding extra money to attract new workers and keeping existing employees happy, navigating the cost crisis of life that eats away at people’s discretionary spending,” she said. added.
Upgrades are possible
According to Peel Hunt analyst Ivor Jones, Whitbread’s share price has “underperformed a falling market” since the company released its full-year figures in late April.
In a recent note, he insisted that the reported strength of the exchanges meant there was “potential for upgrades”, despite rising costs.
“A UK economic downturn with full employment is relatively good news for Premier Inn,” he said. “A significant portion of demand comes from people traveling for work who need to be at a variety of locations.”
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Anna Barnfather, an analyst at Liberum, has a “buy” recommendation on the stock and a target price of £33.20, representing a 35% premium to the current level of £24.66.
She pointed out that momentum was building and “visibility is improving across all divisions”, while UK accommodation sales were significantly above pre-Covid levels.
“The faster-than-expected recovery continued into the start of the year with better visibility into the second quarter with 40% booked,” she said. “Leisure demand looks strong for the summer with business demand supported by the return of ‘white collar’ demand.”
Barnfather also highlighted Whitbread’s plans to invest a further £20-30m in labour, refurbishment and IT.
Half of that figure relates to “targeted hotspot pay,” effectively advancing planned wage increases in some areas where the job market is tight.
“This accelerated investment should help the company maintain its outperformance relative to peers in the more capital-constrained Mid and Economy segments,” she said.
Longer term resilience
While the rising cost of living could expose hotel chains, Premier Inn should be more resilient than most of its competitors, according to Charlie Huggins, head of equities at Wealth Club.
“At the height of the financial crisis, Premier Inn’s comparable sales were down around 8%,” he said. “Painful yes, but a much better performance than most hotel chains.
Huggins thinks the main factor in favor of Premier Inn is its brand. “It’s known for offering excellent value for money and sits firmly in the ‘budget category,'” he said. to tighten one’s belt.”
Cost advantage over competitors
Huggins also pointed to Premier Inn’s cost advantage over rivals, which he said was due to its size and the fact that it owns more than half of its hotels, rather than paying expensive leases. .
“A very high proportion of bookings are also made directly, a much cheaper means of customer acquisition than paying commissions to third-party online travel agents,” he said.
While that doesn’t mean Premier Inn is immune to inflationary pressures, particularly labor shortages, Huggins believes it has more options than many of its peers.
“This should pave the way for further market share gains, especially if conditions worsen,” he added.