Whitbread continues to have admirers despite flat performance

Whitbread PLC (LSE:WTB) shares declined 2% following a report of a 2% drop in UK RevPAR for Q1 and a 16% decrease in food and beverage sales due to restaurant conversions, although German RevPAR increased by 12%. Peel Hunt maintains a 'buy' rating with a 3,840p target price, citing strong long-term value driven by accelerating room openings and increasing business market penetration, while acknowledging that achieving full-year forecasts depends on a UK performance rebound in the second half, despite the company's £2 billion share buyback program remaining on track.

Analysis

Whitbread PLC experienced a 2% share price decline to 2,725p following its first-quarter trading update, which revealed a 2% decrease in UK Revenue per Available Room (RevPAR) and a significant 16% drop in food and drink sales, the latter partly attributed to strategic restaurant conversions into hotel rooms. This underperformance in the UK, a key market, contrasts sharply with a robust performance in Germany, where RevPAR increased by 12% overall and 17% at mature sites, indicating successful expansion in this region. Despite the UK challenges, Whitbread's plan to return £2 billion to shareholders over five years remains on course, and forward bookings are reportedly ahead of the previous year. Analyst firm Peel Hunt, while maintaining a 'buy' rating and a 3,840p price target, highlighted that achieving full-year forecasts is contingent upon a significant improvement in UK performance during the second half. Peel Hunt underscores Whitbread's value creation through accelerating room openings, particularly in higher-priced London locations, increasing penetration in the business market, and the struggles of independent competitors, suggesting strong long-term potential if Germany achieves profitability and hotel openings continue apace.

Key Decisions for Investors

• Investors should weigh the current underperformance and pressure in the UK market against the strong growth in Germany and the company's long-term strategic initiatives such as accelerated room openings and shareholder returns.
• Close monitoring of UK RevPAR trends and the impact of restaurant conversions on food and beverage sales in the coming quarters is crucial to assess the likelihood of a second-half recovery.
• The significant upside implied by Peel Hunt's target price suggests potential value, but this should be balanced with the execution risks associated with improving UK market conditions and achieving sustained profitability in Germany.