Whitbread betting on demand rebound as hotels reopen
Whitbread betting on demand rebound as hotels reopen
07 JULY 2020 8:14 AM

Despite declining revenue due to the pandemic, Whitbread PLC and its major hotel brand Premier Inn are poised to benefit from pent-up demand with a plan to reopen all properties by the end of July.

DUNSTABLE, England—With only about a third of its hotels open, Whitbread PLC’s performance has taken a hit in the first quarter due to the COVID-19 pandemic, but CEO Alison Brittain said she is starting to see a pick-up, thanks to pent-up travel demand.

In a first-quarter trading update, the British hotel firm reported on 10 June it raised £1 billion ($1.25 billion) in new capital with a fully underwritten rights issue that issued one new share for shareholders’ every two.

Brittain said this puts the firm in a strong position as the United Kingdom increasingly comes out of lockdown measures.

Approximately 270 (33%) of Whitbread’s U.K. hotels have reopened, and Brittain stated the majority of the remainder will do so before the end of the month.

She added the firm is seeing renewed demand, especially as the U.K. reopens hotels and restaurants. The majority of Whitbread’s assets, mostly Premier Inns, are located in the U.K.

Whitbread did not hold a conference call with analysts to discuss the Q1 trading update, in which it reported comparable total revenue declined 79.4% in the first quarter from the same period in 2019.

In notes accompanying the results, Brittain said “it is still very early days and, therefore, too early to draw any conclusions from our booking trajectory, especially as there has been volatility in hotel performance in other countries that relaxed controls before the U.K.”

In Germany, all of its 19 hotels are operating again, 13 of which rebranded to Premier Inn and completed full renovations during the lockdown.

Analysts said a return of corporate business will be essential for Whitbread.

“The problem is (Whitbread) only has 15% (of its hotels) in ‘tourism’ spots, so (it needs) urban travel or things like weddings to come back before they can recover,” said Alex Brignall, partner, transport and leisure, at Redburn. “They also have a big exposure to business, as do all hotels, so if that doesn’t come back, which I think is a likely outcome, they are in trouble.”

Richard Clarke, senior analyst at Bernstein, said the expectation is that every Whitbread hotel will reopen.

“That is likely better than the wider market, where we would expect some hotels never reopen. However, compared to the wider market Whitbread skews to business travel, over leisure, where currently there is greater uncertainty,” he said.

Stefano Bertolini, analyst at Jefferies, said Whitbread’s hotel portfolio stands to benefit from drive-to demand.

“(Approximately) 90% of Premier Inn’s demand is domestic, and with staycation at the top of the agenda and drive-to markets expected to recover sooner, we think Whitbread will recover quickly. We believe that leisure will recover sooner than business, and Whitbread's 50/50 business/leisure mix is more favorable than the industry 65/35 mix,” he said.

Monique Pollard, director of equity research at Citi, said that “given only (approximately) 20% of the Premier Inn estate is in London, weaker performance of large cities should be less of a drag than for some other operators in the space.”

As of press time, Whitbread’s stock was trading on the London Stock Exchange at £23.33 ($29.22) per share, a decline of 51.9% year to date. The Baird/STR Hotel Stock Index was down 38.1% for the same time period.

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