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The strong get stronger

Whitbread 29 June 2021 QuickView
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Whitbread

The strong get stronger

Travel & leisure

QuickView

29 June 2021

Price

3,200p

Market cap

£6,460m

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Share details

Code

WTB

Listing

LSE

Shares in issue

202.0m

Business description

Whitbread owns and operates Premier Inn, one of the largest budget branded hotel chains in the world. It is clear leader in the UK with c 79,000 rooms and has a growing presence in Germany (c 5,000 rooms). Its restaurant brands, primarily on joint sites with Premier Inn, include Beefeater and Brewers Fayre.

Bull

Strong position in a long-term growth market (budget hotels), with significant opportunity to repeat UK success in Germany.

Benign environment post COVID-19: pent-up demand, reduced competition and enhanced availability of sites at lower prices and on more flexible terms.

Robust, asset-backed balance sheet (available liquidity of c £2.2bn at February 2021).

Bear

Threat of continuing COVID-19 restrictions.

Macroeconomic uncertainties, mitigated by retention of good liquidity and new three-year £100m efficiency programme.

Execution risk in terms of planned expansion.

Analysts

Richard Finch

+44 (0)20 3077 5700

Russell Pointon

+44 (0)20 3077 5700

Confirmation of recovery ‘much broader than staycations’, backed by continued significant outperformance of the midscale and economy hotel market in the quarter to May, highlights a predictably positive update by Whitbread. That is not to play down expected ‘very strong’ demand throughout the summer at tourist locations (c 15% of the estate). While key office-based demand may not pick up meaningfully until the autumn, robust finances, brand strength and economies of scale should allow Whitbread to benefit materially on pandemic fallout (Q122 saw further estate improvement in the UK and an expanding pipeline in Germany). The delay in easing UK lockdown restrictions until 19 July does not change management’s outlook and guidance for the full year to February 2022.

Q1: On the cusp of recovery

With only essential business allowed up to 17 May, just two weeks of Whitbread’s Q1 saw arguably normal trading, albeit with COVID-19 restrictions. Trading then was ‘strong’, particularly in tourist areas thanks to pent-up demand and school half-term, with a ‘marked improvement’ elsewhere apart from in central London and at airports. Indeed, most recently, for the 30 days from 17 May, UK accommodation and F&B sales reached c 75% of the levels of pre-pandemic 2019, which is encouraging from almost a standing start (March and April sales more than 75% lower than 2019 despite most hotels open). Continued material outperformance of the midscale and economy sector (by 11pp for Q1 after at least 5pp in each month of H221) was driven by brand strength and distribution, as well as a higher level of competitors’ temporary closures. In Germany (2% of FY21 revenue), severe COVID-19 restrictions throughout Q1 (occupancy 15%) preclude detailed assessment other than recognition now of ‘a recovering market’.

Stepping up investment

A major new marketing campaign, ‘Rest Easy’, refurbishment capex at 2019 levels, a £100m efficiency drive and active pipeline growth mark this year’s planned £350m investment to take advantage of structural opportunities enhanced by COVID-19 fallout, notably migration from independents to budget branded hotels.

Valuation: Fair

With FY22 disrupted by COVID-19, we base the valuation on pre-pandemic FY20 and pre-IFRS 16 numbers. £567m EBITDA on net debt of £71m (May 2021; excluding leases) suggests an EV/EBITDA of 11.5x, reflecting Whitbread’s clear long-term growth potential (average of 9.6x for European peers on a similar basis).

Consensus estimates

Year
end

Revenue
(£m)

EBITDA
(£m)

EPS
(p)

DPS
(p)

P/E
(x)

Yield
(%)

02/20

2071.5

755.6

166.3*

32.7**

19.2

1.0

02/21

589.4

(186.5)

(287.6)

0.0

N/A

N/A

02/22e

1546.4

309.0

(57.0)

0.0

N/A

N/A

02/23e

2124.0

672.0

88.0

0.0

36.4

N/A

Source: Refinitiv. Note: *Restated for June 2020 rights issue. **No final dividend paid.

EDISON QUICKVIEWS ARE NORMALLY ONE-OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

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1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been prepared and issued by Edison. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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