Premier Inn owner Whitbread was upgraded to a 4,000p share price target by Barclays on Wednesday following an impressive set of results last week.
The lift in targets was largely driven by the group upgrading guidance, a new £300mln share buyback programme and Barclays having a brighter outlook on Whitbread’s pricing power.
Whitbread had previously upped guidance for revenue per available room (RevPAR) growth to 5.5% from 3% when it reported full-year results.
Barclays as well has now increased its 2024 earnings per share forecasts by 15%.
“We think many investors do not believe pricing growth at Whitbread’s UK hotels is sustainable as it is far above 2019 levels,” Barclays added.
The bank pointed out that “the market continues to doubt pricing trend sustainability” and that Whitbread’s prices have grown ahead of inflation since 2019.
“Yet, this does not reflect that prior to 2019 UK hotel pricing growth had been dismal for the company,” the UK lender said.
The pre-pandemic average daily rate of Whitbread’s rooms was 30% behind UK peaks and even remains 30% below the heights seen in 2007.
Importantly, the supply of hotels in the UK has shrunk by 4% in recent years, falling back to 2013 numbers.
Combining this with the fact the group was 3% behind market prices last year, Barclays believe Whitbread still has a lot more opportunities to adjust fees.
Shares in the hotel and restaurant company have jumped by close to a quarter in 2023 and Barclays’ new target offers another 25% upside to the current 3,250p price.