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Questor: its strong finances mean Whitbread will survive where others may not. Hold

Russ Mould
·4-min read
Premier Inn sign
Premier Inn sign

A reversal of the Government’s efforts to encourage a return to work and wider social activity is not what any of us wanted to see for so many reasons.

Looked at through the narrow prism of share prices, it is not a welcome development, especially when it comes to Whitbread, the owner of Premier Inn.

Our main worry when we looked at the stock in May was the risk of a second wave and the impact that could have on any nascent recovery. Such fears now seem well founded and, while there are more important things than share prices, this is unfortunate as the business had started to show some signs of improvement.

Industry data were pointing to higher nationwide hotel occupancy rates, especially in the lower-to-mid price segment outside London, a market in which Premier Inn is well placed. Whitbread’s own trading update last week confirmed this impression.

Occupancy in Britain had reached 51pc in August and total sales were down by 38.5pc across hotels and food compared with the first half’s 77pc plunge. Occupancy in Germany reached 54pc as 19 hotels, including 13 recent acquisitions, were open for business.

Bearing in mind May’s comment from Alison Brittain, the chief executive, that a one percentage-point drop in sales equates to £18m of profit, the moves to enforce additional local and regional lockdowns, and fresh restrictions on trading hours for pubs and restaurants come at an important time.

September and October can see business bookings pick up and thoughts move towards the festive season. In response, Whitbread is reluctantly consulting with just over a sixth of its staff about possible job cuts.

In sum, it feels like the shares are going to go nowhere fast until there is greater clarity on the reach and duration of the pandemic, and the extent to which government policy continues to change. Anyone who hopes for a quick buck from the stock may be better off checking out.

Whitbread key facts
Whitbread key facts

However, May’s £1bn rights issue means risk-tolerant and patient investors can afford to stick around.

Whitbread already had 18 months’ money at hand, assuming very little by way of revenues, and the cash injection enhances the FTSE 100 company’s ability to service its £2.5bn in lease liabilities. Moreover, the balance sheet means Whitbread may have greater staying power than some of its less well-financed rivals, creating a long-term opportunity to grab market share.

The long haul back has just got longer and bumpier, but Whitbread is prepared and shareholders can be patient.

Questor says: hold

Ticker: WTB

Share price at close: £21.64

Update: Restore

An ongoing, grinding slide in the share price of Restore leaves this column facing the same conundrum as that posed by Whitbread.

Restore is a well-run business with strong competitive positions in its chosen field of data and document management, while its finances and cash flow seem robust enough to see it through the current difficult economic environment.

Yet the shares cannot seemingly catch a bid, offer no protection by way of a yield and earnings estimates continue to dribble lower, judging by how the shares traded at 16 times forecast earnings at 434p when we first looked at them in August last year and swap hands on 14 times forecast earnings for 2021 after a one-third price fall.

In theory, the gathering move to flexible working will place a premium on data and document management, and could also boost the office removals business as staff shift to the home and away from the office.

But for the moment, the share price seems more concerned about the impact of the pandemic on working patterns in offices and schools in other areas, such as shredding and document disposal, and the cancellation of examinations.

Moreover, relocation work may only really accelerate if employers decide to reduce office numbers and space permanently, and it may take lease expiries to trigger such a decision.

It’s another stock without an apparent catalyst to trigger performance, barring the containment of the pandemic, so we shall have to sit and suffer.

Questor says: hold

Ticker: RST

Share price at close: 307.5p 

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 6am.

Get in touch | How to contact Questor
Get in touch | How to contact Questor