Whitbread shares have been under pressure recently from downgrades to revenue per room or REVpar growth at Premier Inns, something that Jefferies sees as overlooking the long-term picture.
A first-quarter trading update for the year to next March (2025) is due next week and ahead of that consensus annual profit estimates have dropped 4% recently to £533 million, or implying per room revenue growth of less than 1%, says the US bank.
Jefferies adds that REVpar is also a very short-term, volatile indicator and after the dampener of the recent rain, the second quarter will see earnings potentially benefiting from major music events like Taylor Swift concerts.
Germany should reach a break-even run rate this year and profitability by 2026, but here too there might be an earlier boost from Euro 2024 in this quarter.
In the long term, Whitbread intends to add additional hotel rooms in under-penetrated areas by replacing loss-making pubs and restaurants.
The plan includes converting 112 restaurants to hotel rooms and disposing of 126 branded restaurants, using the proceeds to fund the conversions, which should contribute to market share gains.
Jefferies likes this strategy and "With largely de-risked earnings and a clear path to re-rating", is sticking with its ‘buy’ rating and target price of 4,000p.