The FTSE 100 group, which has begun buying back shares to return a planned £2.5bn of cash to shareholders after selling its Costa Coffee chain for £3.8bn in January, reported underlying revenue from its continuing businesses of £2.05bn for the year to 28 February, up 2% on the previous year. A 'variable price' tender offer will be launched in June to return up to £2bn of the Costa proceeds, subject to shareholder approval at the annual meeting in June.
Underlying profit before tax and earnings per share both rose 1% to £438mln and 193.2p respectively, while the full year dividend of 99.65p was down from 101.15p a year ago. City analysts had expected revenue of £2.09bn, underlying PBT of £477m and EPS of 204.6p.
Chief executive Alison Brittain said the fourth quarter had been hit by weaker UK hotel demand, which she put down to a “decline in business and leisure confidence”.
This softness lingered into March and April, particularly in the business market outside of London, which was attributed to the political and economic uncertainty around Brexit.
Regional midscale and economy market sales were down 1.5% in March and revenue per available room was down 4.4%, leading the company to guide to a weak UK market for the year.
“At this stage in the new financial year it is too early to know how business confidence and its impact on the market will evolve,” Brittain said, pointing to the group’s strong balance sheet, new £220m cost-cutting scheme, comparative benefits of its business model, but dropping its her previous guidance for flat full-year profits in the year.
Confidence to invest...
Brittain maintained that Whitbread’s integrated operating model, where it both owns and operates its Premier Inn hotels, “means we are likely to be more resilient in a weaker market than many of our competitors” and added that her plans to continue investing in expansion despite the economic uncertainty “will place us in an advantaged position in the future”.
These points were recently made an investor strategy event, where Brittain and other directors revealed plans to expand the UK hotel network from the current 76,000 rooms, with around 13,000 rooms in our committed UK pipeline and a new “runway” of growth to 110,000 rooms, with further growth potential seen in new no-frills Zip format. Expected cost savings of £40mln-£50mln will be more than offset by £70mln cost increases in the year.
The plan is to open 3,000-4,000 rooms in the UK in the year ahead, while ramping up operations in the new market of Germany, where a second hotel opened in February. Losses from Germany are expected to be roughly £12m this year as investment is made to support the roughly 2,500 rooms that will open during the year.
...but lack of confidence in forecasts
Whitbread shares had fallen 3% to 4,610p after just over an hour of trading on Tuesday.
Morgan Stanley noted that previous guidance for flat full-year profit before tax has been dropped and said the update points a £40mln-£50mln PBT headwind, suggesting modest downside to its £415m estimate but more to the City consensus of £443m. Analysts at the bank estimate that every 1% on RevPAR feeds through to £8m-£13m to EBIT, and that every 1,000 new rooms is roughly £8-10m to EBIT.
Looking at the shares Morgan Stanley said have "we no longer see the valuation as that attractive", with an 'equal-weight' rating.
Numis said its current assumption of a 2% fall in RevPAR "looks too optimistic and we see mid single digit downside to consensus estimates as a result" and while noting the structural growth prospects in both the UK and Germany and the strength of operating model and returns, expects the weak market RevPAR and negative earnings momentum will weigh on the share price in the near term.
Numis added that the £2bn tender offer "is an important part of the return of capital", noting that the use of a "variable price" offer will mean the price range is based on a volume-weighted average price of Whitbread's shares in a short period up to and including closing of the tender offer at the point of completion.