Whitbread (WTB): £36.75

Gain to date: 9%

We recommended buying into hotel and leisure group Whitbread (WTB) in June 2023 as revenue, earnings and dividends were already well above their pre-pandemic levels but the shares had yet to recover.

In addition, bookings were on an improving trend not just among holidaymakers but also business travellers and we were watching corporate developments.

Press talk suggested Whitbread was looking to sell part of its UK pub and restaurant division, which typically earns a lower margin than the hotels, while a private deal for Travelodge suggested the core Premier Inn business was significantly undervalued.

WHAT HAS HAPPENED SINCE WE SAID TO BUY?

The group posted strong results for the six months to September, with revenue up 17% on what was already a robust performance in the prior year and up 55% on the same six-month period before the pandemic.

Chief executive Dominic Paul called the results ‘outstanding’, rewarding investors with a 40% hike in the interim dividend and an extension of the share buyback programme.

Paul also said the group saw the undersupply of quality UK hotel accommodation extending to at least 2028 due to the closure of so many operators due to the pandemic.

The positive momentum in first-half bookings and revenue continued into the third quarter, with the firm reporting ‘robust demand’ in the UK driving high occupancy levels and strong pricing.

While there was no change to current-year guidance, for the coming year the company said the supply situation in the UK still looked favourable and it had a strong forward booked position as well as a plan to offset cost inflation – which has slowed sharply to just 3% to 4% - with operational cost savings.

Finally, although there has been no word on disposals, the recent sale of 66 Travelodge hotels for £210 million – 50% above the value suggested last summer when US hedge fund GoldenTree was looking to offload the chain – suggests even more valuation upside for Whitbread’s estate.

WHAT SHOULD INVESTORS DO NOW?

We would sit tight as we expect Premier Inn UK to continue posting solid quarterly numbers, while 2024 should see Whitbread’s German operations start to contribute to group earnings after a lengthy period of building momentum, and the valuation still looks attractive. 

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