Morgan Stanley has checked out of Whitbread PLC (LON:WTB) shares, downgrading its rating for the refocused hotels operator to ‘equal-weight’ from ‘overweight’ due to signs of weaker demand as Brexit uncertainties drag on.
The US investment bank also reduced its target price for the FTSE 100 listed firm to 5,200p from 5,500p, with the shares currently trading at 4,886p, down 0.2% on Wednesday’s close.
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In a note to clients, Morgan Stanley’s analysts said cash return and German expansion are key short-term and long-term supports respectively for Whitbread, but mid-term sentiment will be driven by corporate hotel demand, which remains weak.
They added that deteriorating UK RevPAR (revenue per available room) has led to another 5% cut in their earnings per share estimates for the Premier Inn owner, and with the shares having re-rated, that has neutralised its previously positive stance.
The analysts pointed out that regional UK RevPAR has been sequentially slipping – January down 2%, February down 3%, and March down 4% - with April likely to weaken further, given the late Easter holidays.
They said: "The weakness appears to be more in business demand than leisure at this point, likely due to the slowdown in business investment filtering through to hotel demand, according to our channel checks."
The analysts concluded that this is related to Brexit-led uncertainty, and could last as long as the European Union's extension, however, if a deal passes soon for an orderly exit and more clarity, this should be good news for hotel demand.