Whitbread PLC (LSE:WTB) shares rose 2% then fell into the red after an improvement in first-quarter sales as its Premier Inn hotels in the UK and Germany continued to outperform their respective markets.
The hotelier reported total sales up 2% to £727 million in the 13 weeks to 28 May, strengthening from the 0.8% growth reported after the first eight weeks of the financial year.
Growth in accommodation revenue was partly offset by lower food and beverage sales as the company continues to reduce its exposure to branded restaurants.
In the UK, accommodation sales increased 3% and revenue per available room (revPAR), a key industry measure of hotel performance, rose 2%.
Premier Inn gained market share during the period, with accommodation sales and revPAR growth ahead of the wider midscale and economy hotel sector.
Trading was strongest in London, where accommodation sales rose 7% and revPAR increased 4%. In the regions, both measures were up 1%.
In Germany, accommodation sales increased 16% in sterling terms, helped by the opening of six new leasehold hotels and stronger demand. Total sales in the country rose 18%.
Chief executive Dominic Paul said: "We delivered a strong and improved performance in the first quarter. In the UK, driven by the strength of our brand and commercial programme, total accommodation sales and RevPAR continued to grow ahead of the wider market."
Paul said forward bookings in both the UK and Germany were ahead of last year, supported by "strong leisure demand", giving the company confidence in its outlook.
Whitbread reiterated plans unveiled in April to exit its remaining branded restaurant operations and focus solely on hotels. The company said it remained on track to reduce capital intensity by £1 billion and generate £2 billion of free cash flow available for shareholders by the 2031 financial year.
The shares rose 2% to 2,444p in early trade, then fell 1.6% within the first hour, before flattening off again.
Broker Shore Capital said it was a "solid" performance from the hotel group, showing strengthening UK revPAR through the period, outperforming the market in both UK and Germany, an unchanged cost outlook and progress against its five-year strategic targets.
"We would not anticipate much change to consensus estimates on the back of today’s update (c.1% UK RevPAR growth)," Shore's analysts wrote.
They noted that the shares trade on a PE ratio of circa 13x and an EV/EBITDA of 7x.
"With the unwinding of circa £50 million of one-off costs, a maturing Germany portfolio and the benefits from its ongoing five-year plan, earnings would be expected to build materially over the medium term (assuming market dynamics remain stable), which is clearly not reflected in the valuation for a such an asset rich business," Shore said in a note.
"That Whitbread is becoming a “show me” stock, the discounting of such opportunities, especially under the current backdrop, is likely to be backend weighted, as and when the cash flow comes through. Therefore, management may need to be more proactive in bringing forward the cash flow profile to see the rerating we believe is merited."
** UPDATE: Adds share price and broker comments **
