Restaurant and hotel chain Whitbread (WTB) has been voted our stock of the week by Twitter users, beating nearest competitor Restaurant Group by a wide margin. Food is never far from our thoughts at Morningstar.co.uk and this week’s poll is timed to coincide with the end of the “Eat Out to Help Out Scheme”. Announced in the Budget, the 50% off food and drinks scheme has exceeded expectations, with more than 60 million discounted meals taken since the initiative launched in early August. After such success, some restaurants have said they are planning to extend the offer through September to help make up for those months of trade lost to lockdown.
Alongside Beefeater and Brewers Fayre restaurants, budget hotel chain Premier Inn is the company’s main brand with over 800 hotels, representing more than 10% of the UK's available hotel rooms. While many hotel chains were forced to close during lockdown, 39 Premier Inns were available to book by key workers, allowing the company to test social distancing protocols and the like before the rest of the hotel estate re-opened. In contrast, many other hotels were forced to close in March and only re-opened their doors again in early July.
Along with other companies in the hospitality industry, this year’s events have weighed on Whitbread’s share price, which is down 43% since the start of the year to £23.96. A rights issue, now completed, has also put pressure on the shares in recent months.
Earlier in the year, we wrote about companies that planned to raise money from shareholders to see themselves through this difficult year and provide a war-chest for any acquisition opportunities that might arise. Whitbread raised nearly £1 billion from both retail and institutional investors in the summer, with over 90% of shareholders taking up the discounted shares priced at £15.
Holidays and Hotels
In its recent July update, which covered the period up to May 28 and the height of lockdown, the company said that sales in the UK and overseas fell nearly 80%. Alex Brignall, transport and leisure analyst at stockbrokers Redburn, says the return of demand for hotels in UK leisure destinations is encouraging – but it’s too early to assess how Whitbread’s hotels and restaurants will perform for the rest of the year.
Whitbread recently featured as one of our “staycation stocks” as quarantine chaos and tough economic times backs the case for UK budget hotels. This week has seen Croatia and Austria added to the UK Government’s list of countries with travel restrictions, suggesting that the return to normality for holidaymakers is still a long way off and the staycation trend could last a while yet.
At the time of the recent update, chief executive Alison Brittain, was also cautious: “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 UK.” The company also owns properties in Germany, where it plans to open 30 hotels in this financial year.
Dividend-wise, Whitbread joined the list of companies that have suspended payouts (as well as cancelling the final dividend payment for the last financial year).
Which funds hold Whitbread? The company features in a range of special situations, recovery and value portfolios. The stock makes up just under 4% of Merian UK Alpha, which has a Morningstar Analyst Rating of Silver, and four-star rated Invesco UK Focus.
Whitbread also forms part of a number of Morningstar indices, including Morningstar Global Consumer Sectors, which has risen by 12% in 2020, and Morningstar Global Restaurants, which is off around 1% so far this year. The company is also part of the Morningstar UK Sustainability Dividend Yield Focus index, which features companies that rank highly according to environmental, social and governance factors. It is rated as "Low Risk" by Sustainalytics because of its strong corporate governance.