Shares in Premier Inn owner Whitbread (WTB) traded 1.3% higher to £22.74 after the company’s first-half results revealed the extent of the hit taken from the coronavirus pandemic.
But despite the unfavourable backdrop the company said it plans to invest in growing its pipeline as it looks to increase its share of the fragmented hotel market in both the UK and Germany, with the company pinning most of its growth hopes on the latter.
The firm swung to a steep loss in the six months to 30 September and as expected scrapped its dividend after being hit by lockdown restrictions, with pre-tax losses for the period amounting to £724.7 million, compared to a year-on-year profit of £219.9 million, while revenue slumped 77% to £250.8 million.
On current trading, Whitbread said Premier Inn UK’s occupancy increased from 51% in August to 58% in September.
However, it added that it had seen another slowdown in market performance since recent regional lockdowns and the Government’s announcement in early October that people should work from home where possible.
‘UNIQUELY POSITIONED TO INVEST’
In a group call with reporters, Whitbread chief executive Alison Brittain warned there would challenges ahead for the firm in the near-term with occupancy declining in October and set to fall further in November and December as lockdown restrictions ramp up.
But she said the pandemic has accelerated the ongoing structural shift in the hotel industry from independent operators to budget branded hotels, highlighting the fragmented nature of the sector with around 50% of hotels in the UK run by independent operators and 72% in Germany.
Brittain said Whitbread is looking to use the current weakness in the market to invest in growing its number of hotels, saying some of the company’s best periods of return have been when investing during a period of constrained supply and investment, and pointed to its £2 billion in liquidity, enhanced by the £1 billion June rights issue.
She added, ‘The impact of the pandemic will cause a change in the competitive landscape and a lot of companies will become constrained quite quickly. From a Premier Inn perspective we suspect we will see less investment from others, and we are uniquely positioned to invest.’
‘ONCE IN A LIFETIME OPPORTUNITY’
Shore Capital analyst Greg Johnson believes Whitbread is ‘well-positioned to be a survivor and eventually thrive’ in a post-Covid world, highlighting its net cash position of £196 million compared to net debt of £323 million at the end of February, as well as Premier Inn improving its UK market share from 7% to 10.5% during the period, but said the current share price suggests the market is discounting a sustained period of earnings weakness.
He added, ‘We believe that Whitbread is well placed for a return to trading given its limited exposure to conferences, health & beauty, under-indexes in London and limited service offering.
‘Longer-term, we believe that the current market dislocation is likely to present a once in a lifetime opportunity to build a meaningful position in the German market, whilst capturing further share in the UK.’
