Whitbread (WTB) £25.95

Loss to date: -1.2%

Original entry point: Buy at £26.26, 19 May 2022

Shares in the UK’s leading hospitality and hotel group are barely changed since we initially recommended buying, despite growing fears of a cost-of-living crisis and a potential recession.

As the firm’s recent update revealed, and as data from credit card companies confirms, consumers here and in Europe are still happy to spend on travel and entertainment despite the rising costs of food and energy.

WHAT’S HAPPENED SINCE WE SAID BUY?

UK consumers are undoubtedly starting to cut back on their discretionary spending since we flagged Whitbread (WTB) in May, with home renovations a good example.

However, people still want to travel and the Premier Inn chain with over 90,000 rooms in the UK alone represents good value for money for those looking to make their pound (or euro) go that bit further.

In the half year to September, revenues were more than double the same period last year and were 25% higher than the same period in 2019 before the pandemic.

That increase in turnover turbo-charged earnings, sending the firm to a better-than-expected adjusted pre-tax profit of £272 million against a prior-year loss of £56.5 million.

As well as a recovery in UK spending, trading in Germany – where it has 14,000 rooms – is seeing good momentum with some of the more established hotels moving into profit for the first time putting the firm on track to reach its return on capital target.

The company flagged rising labour, energy and food and beverage costs as pushing up operating expenses, but these are being partially offset by higher interest income on its cash and pension surplus.

WHAT SHOULD INVESTORS DO NEXT?

We think investors should make themselves comfortable ready for the next move up in the shares as the company rolls out more rooms here and abroad.

With current trading improving, a declining independent sector – which means less competition at the budget end of the market – and the strength of its brand, the firm is fully confident of its targets for the year to next March.

‹ Previous2022-11-03Next ›