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Questor: Premier Inn will only get stronger, so we’ll hold on to its owner

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  • WTBDY
Premier Inn
Premier Inn

Two key parts of our investment case for the hotelier and restaurateur Whitbread, outlined in April last year, are falling into place: visitors are returning to the hotels (in both Britain and Germany) and Premier Inn is busily taking market share from weaker rivals.

Indeed, the recovery seems to be coming through ahead of expectations and the chief executive, Alison Brittain, has said revenue per available room, or Revpar, a key performance metric, could reach pre-pandemic levels this financial year.

That is all enough to keep us interested in the FTSE 100 company although, as ever, potential challenges lie ahead. The rise in German occupancy rates continues to lag that in Britain, while costs are starting to increase, in yet another example of how inflation is making its presence felt.

Higher staff costs, and utility bills, mean that margins could take some time to reach pre-pandemic peak levels (assuming they get there at all), even if Revpar looks to be back on track. Nor is there any guarantee that 2021’s staycation boom will return in 2022.

However, in adversity comes opportunity. A £1bn rights issue in the summer of last year leaves Whitbread with the financial muscle to continue to invest in marketing and the refurbishment of existing hotels, all while it adds new ones and meets those higher costs to ensure that quality of service is maintained.

Not all rivals are so well placed and this means market share could be there for the taking even as the market continues to recover.

Patience will be needed. No dividend is expected for the current year and analysts still expect the firm to make a loss. Any new virus variants would be bad for sentiment, too, and cost pressures must be watched carefully.

But the opportunity in Germany is considerable, there is scope for Premier Inn to get even stronger in the mid-scale and economy sections of the UK hotel market and the business seems to be gathering momentum again.

We can still bed down with Whitbread.

Questor says: hold

Ticker: WTB

Share price at close: £33.10

Update: Yellow Cake

The uranium storage specialist Yellow Cake raised yet more money from investors last month. This column is generally not wild about serial fund raisings – they can lead to dilution for private investors in particular – and this is the third such transaction in 2021.

But the case looks strong for raising this $150m slug of cash, to add to the $227m rustled up in the two previous deals, especially as it means Yellow Cake’s holdings of uranium oxide could now double to 18.9m pounds between February 2021 and June 2022 at the latest.

The uranium price is still strong after a gain of nearly 70pc over the past year to about $50 a pound and the scramble for reliable supply seems to be well and truly on, for both industrial buyers (even the world’s leading producer, Kazatomprom, is putting money into a new fund) and financial ones (as the Sprott Physical Uranium Trust continues to gobble up product in what remains a tight spot market).

Yellow Cake’s shares trade around net asset value and any rise in the commodity’s price could therefore drive further gains in the shares. Hold.

Questor says: hold

Ticker: YCA

Share price at close: 351p

Update: Zytronic

Last month saw a further positive update from the rugged screens manufacturer Zytronic. While it is a long way back to our entry price north of 400p this at least justifies our decision not to jettison our shares in the company, where technological leadership and net cash on the balance sheet are now being joined by improved business momentum as foundations for a solid investment case.

The chief executive, Mark Cambridge, said sales in the second half of the year were 44pc higher than in the first half and predicted a return to profit for the full year, as well as a welcome increase in the net cash pile to £9.2m, which in turn underpins the £21.7m market value. Hold.

Questor says: hold

Ticker: ZYT

Share price at close: 190p

Russ Mould is investment director at AJ Bell, the stockbroker

Read the latest Questor column on telegraph.co.uk every Sunday, Tuesday, Wednesday, Thursday and Friday from 5am.

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