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Research: Consumer
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.
Whitbread |
The strong get stronger
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Travel & leisure |
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29 June 2021 |
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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).
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Consensus estimates
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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Research: TMT
Trackwise Designs’ FY20 results show a resilient response to the pandemic while management expanded IHT capacity to meet the requirements of a multi-million order from an undisclosed UK electric vehicle (EV) OEM. This OEM has recently extended its supply and manufacture agreement with Trackwise from three years to four, increasing the total value by £16m to up to £54m. We note that the volume ramp-up under this agreement has been delayed by a quarter to H122, so we have revised our FY21 estimates, taking EPS from 4.9p profit to 1.0p loss.