Whitbread PLC's (LSE:WTB) turnaround strategy offers a path to higher returns but could prove bumpier than investors expect, said Panmure Liberum, which is booked in for the ride but has cut its target price.
The broker lowered its target price for the Premier Inn owner to 3,200p from 3,440p, but maintained a 'buy' recommendation.
Whitbread's new five-year Accelerating Growth Plan represents a "shift away from maximising room growth towards cash generation and returns [and] is therefore welcome".
However, earnings forecasts have been reduced to reflect near-term pressures from restructuring and slower growth.
The closure and conversion of loss-making branded restaurants is expected to reduce pre-tax profit by around £40 million, while costs linked to the growth plan and a slower pace of expansion in Germany are also set to weigh on earnings.
Panmure described the current year as "another transition year", with management having to balance restructuring costs against longer-term ambitions.
Despite the earnings downgrade, the broker continued to support Whitbread's strategy, which aims to deliver around £275 million of additional pre-tax profit by the 2031 financial year, improve returns on capital and return around £2 billion to shareholders.
Panmure argued that the market remains too focused on the short-term disruption and is underestimating the benefits of a simpler, more hotel-focused business model.
However, analysts cautioned that "the key risk is execution and phasing" as the programme combines disposals, closures, planning, construction, labour restructuring and the rollout of the integrated food and beverage model.
