Premier Inn owner to cut back on restaurants in favour of hotel expansion
Derren Nathan, head of equity research, Hargreaves Lansdown: “Whitbread’s served up a set of record beating results for the 12 months ending 29 February 2024. Premier Inn UK has continued to outperform the rest of the market and management are seizing the opportunity to convert 112 restaurants into 3,500 new room extensions. This appears to be a shrewd way to optimise the current real estate footprint and a capital efficient method to help reach the 2029 target of an estate of at least 97,000 rooms.
The comps are getting harder for Whitbread though. Food & Beverage is struggling so far this year, with sales 2% behind last year and it’s some of these weaker performing branded restaurants, which include the likes of Beefeater and Brewers fayre, that Whitbread has put forward for conversion. Premier Inn is also marginally behind last year but is expecting a step-up in demand across business and leisure over the next few weeks supported by forward bookings ahead of last year. Meanwhile, in its less mature German estate of hotels, accommodation sales are up 21%, and the division is on track to cross the breakeven threshold in the current financial year.
Whitbread’s ongoing expansion and commitment to returning cash to shareholders has seen debt levels creep up but not to levels that are overly concerning. The Board’s indicated its confidence in its ability to further drive growth and expand margins with a generous dividend increase and renewed share buyback programme. The valuation has come under pressure of late largely due to wider concerns about the health of demand for hospitality. But Whitbread is a first-class operator that should be able to execute its medium-term goals and ride out any short-term turbulence.”
