Whitbread declines in UK hotel sector may not be as bad as expected

Ahead of Whitbread's Q1 update, analysts suggest its UK RevPAR decline may be less severe than anticipated, with Jefferies noting May's 3.0% decline in the UK economy hotel sector was "slightly better" than Whitbread's April decline. While Peel Hunt downgraded 2026 and 2027 adjusted profit before tax estimates by 9.0%, they maintain a positive long-term outlook, citing Premier Inn's expected outperformance driven by a £750M+ investment plan, asset disposals, and a share buyback, reiterating a "buy" recommendation with a 3,500p target price.

Analysis

Ahead of Whitbread PLC's (LSE:WTB) first-quarter update, analyst expectations are being fine-tuned amidst mixed market signals. Jefferies highlighted recent Smith Travel Research data indicating a 3.0% decline in UK economy hotel sector RevPAR for May, a figure considered "slightly better" than the 4.1% weekly implied decline and an improvement on Whitbread's 1.6% decline in April. This suggests a potential Q1 UK RevPAR for Whitbread of -1.2%, marginally better than the -1.3% previously anticipated by the broker, assuming continued market outperformance. In stark contrast, the German market shows robust growth, with RevPAR up 9.9% in May, driven by increased occupancy. Despite softer broader industry trading prompting Peel Hunt to downgrade its adjusted profit before tax estimates for Whitbread for 2026 and 2027 by 9.0% to £452 million and £466 million respectively, the broker maintains a positive long-term view. This optimism is attributed to Premier Inn's anticipated continued outperformance, bolstered by a significant strategic plan involving over £750 million in gross investment this year, £250-300 million from asset disposals, and a £250 million share buyback. Consequently, Peel Hunt reiterated its "buy" recommendation and a 3,500p target price, while acknowledging potential short-term pressures on forecasts and the share price.

Key Decisions for Investors

• Investors should closely watch Whitbread's upcoming Q1 update for actual RevPAR figures, particularly the extent of the UK decline versus the potentially better-than-feared indications, and confirmation of strong German performance.
• Consider the dichotomy between the short-term earnings forecast downgrades due to industry-wide pressures and the maintained long-term positive outlook from analysts, supported by significant investment, asset recycling, and capital return initiatives.
• Evaluate the potential for Whitbread's planned £750 million+ investment and £250 million share buyback to drive shareholder value and market outperformance, weighing this against the current challenging operating environment in the UK hotel sector.