Shares in Whitbread PLC (LSE:WTB) are “materially undervalued” according to mid-cap specialist Peel Hunt after the Premier Inn chain owner's buoyant trading update today.
Whitbread’s trading update told of a strong growth story in Germany, where the Premier Inn chain has opened 40 hotels with plans to open 38 more.
“Germany has recovered more quickly than expected following the removal of Covid-19 restrictions,” Peel Hunt analysts Ivor Jones and Douglas Jack said in a broker note.
Whitbread is betting on growth in German hotel occupancy, where it reported strong like-for-like sales gains of 634.7% in the first quarter of the current fiscal year.
The Office for National Statistics said today that inbound tourism and UK travel abroad were both suppressed in 2021.
UK residents made 20% fewer visits abroad than in 2020 due to continued travel restrictions, but spent more on those trips, while overseas visits to the country fell 44% coupled with a 7% decline in spending in the UK market.
Peel Hunt said that with bookings in the second quarter already totalling 40%, Premier Inn’s “management has enough visibility to expect a strong 1H23, but thereafter the outlook is more uncertain”.
It rated Whitbread a Buy, on a price target of 3,600p, and posted a ‘consensus upgrade’ to profits of 10%, which was broadly mirrored across the market.
“Given the strength of trading reported today we expect the consensus PBT forecast (£237mln) to be upgraded by c.10% (our forecast is £246mln),” said Peel Hunt's analysts.
“With a plan for solid growth in the UK, a competitor set struggling to compete, Germany rapidly growing to scale and an attractive FY24E valuation of 8x EV/EBITDA and 20X PE we believe the shares are materially undervalued.”
Investment bank UBS forecast an up to £10mln uplift in the company’s German profits, despite factoring in its £30mln spending update on refurbishment, labour and IT.
UBS said strong trading at Whitbread is “likely to prompt upgrades”, noting that first-quarter sales were “in-line” with expectations and second-quarter trading in the UK market indicates “similarly strong trends”.
“In Germany, recent trading has been ahead of expectations (occupancy now at 64.7% vs. 51.2% in April),” UBS added.
The investor view is more mixed. Whitbread’s shares have fallen 21% over the past year, compared to wider marginal gains in the FTSE100, but rose 5% after the trading update today to 2,696p,
“Whitbread is at the mercy of rising inflationary and supply chain pressures as with so many other companies,” said Interactive Investor. “In all, the encouraging signs are plain to see.”