Trading “significantly ahead”

Unsurprisingly, total accommodation sales in the UK remained far below what would normally be expected over a single quarter (-60.9%). Naturally, food and beverage sales weren’t great either, down 86% compared to what Whitbread was making in FY20 (the year before the pandemic). All told, total sales — including the contribution from Whitbread’s operations in Germany — fell 69.8%.

As scary as these figures initially seem, one does need to keep things in perspective. After all, the UK was still in lockdown for much of this time. Moreover, positive momentum at this FTSE 100 giant appears to be gathering pace.

In addition to stating that it had traded “significantly ahead of the market” in Q1, Whitbread commented today that it had seen “encouraging trends” since 17 May (Step 3 of Boris Johnson’s lockdown roadmap), by which time 98% of its hotels were open. In Germany, 19 of the company’s 30 hotels are now open.  

What next?

Despite Boris Johnson’s decision to delay fully reopening England, Whitbread said today that it would not be making any changes to its full-year guidance. The hotelier also said that it expected “very strong” leisure demand in tourist destinations over the summer. This largely positive outlook should be reassuring for holders, even if a recovery in business demand may not happen until the the autumn. It also goes some way to explaining the near-4% rise in the share price this morning. 

As a longer-term investor, however, I’m more interested in Whitbread’s growth strategy. We’ve known for some time that the FTSE 100 member wanted to take advantage of rivals’ relative instability during this tricky period. It comes as no surprise, therefore, that 10 new hotels were opened over Q1. This attempt to “optimise” its estate and snap up sites should stand it in good stead when normality returns. 

The company’s plans for its German market are also compelling. Having added three new hotels over the last quarter, the FTSE member now has a pipeline of 73 sites in the country.

On top of this, Whitbread’s finances seem in good order. Net debt stood at £70.6m at the end of Q1, thanks in part to an accumulation of customer deposits. This has allowed the company to continue marketing investment to generate more visits to its website. 

My verdict

Whitbread’s share price is still some way below where it stood pre-pandemic. While wary of becoming fixated on this target, it does suggest there’s quite a bit of upside remaining. 

But there are downsides and ongoing risks too. Dividends, for example, are still to be restored. So, I’d steer clear of the stock for now if I were looking to generate income. Moreover, I can’t overlook the possibility that there could be more coronavirus-related crises in the months ahead. Despite its market-leading position, the £7bn cap will never be free of competition either.

Even so, I do believe this is the beginning of the end rather than the end of the beginning to Whitbread’s woes. As such, I’d still be happy to buy this FTSE 100 stock today. 

The post 1 FTSE 100 recovery stock to buy today appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

But following its interim results released last October, the Whitbread share price has been recovering. And has since increased by 55%. Is this a sign that the worst is over? Will it return to its pre-pandemic levels? And should I be adding the stock to my portfolio? 

What’s going on with Whitbread’s rising share price?

Whitbread is an owner of both hotels and restaurants that generate 64% and 36% of revenue, respectively. It operates under multiple UK brands including, Premier Inn, Beefeater, Brewers Fayre, and several others. Unfortunately, these just happen to be some of the worst types of businesses to be heavily impacted by pandemic.

Its locations were forced to close multiple times throughout last year. So the company reported a 77% decline in revenue as well as a net loss of £153.7m. While this is obviously bad news, the interim report did reveal some promising trends that may explain why the Whitbread share price started to climb.

An independent report from PwC estimated that the UK hotel occupancy rate for 2021 will be around 55% and won’t return to pre-pandemic levels until 2023.

However, in the case of Premier Inn, while its average occupancy is around 50%, some of its seaside and tourist area hotels are seeing levels closer to 80%. What’s more, its newly established operations within Germany have experienced 32% growth in sales, even with all the lockdown restrictions in place.

Combining this performance with Whitbread’s successful rights issue that raised £1bn last year makes me believe the worst may have passed. 

Risks to consider

Both Whitbread’s hotel and restaurant businesses appear to be recovering based on quarterly performance. However overall, sales for both segments are still down by around 70% over the last nine months. The firm did raise a substantial amount of capital to see it through the remainder of the pandemic. But this may not be enough if the easing of lockdown restrictions is delayed, or if new health emergencies crop up in the future.

Another risk to consider is unrelated to the pandemic. The budget hotel industry is incredibly competitive, which limits Whitbread’s pricing power. 

The bottom line

Whitbread has a long road to recovery ahead, and I believe the share price has somewhat prematurely increased.  However, I find the strong performance from its German operations encouraging. These international hotels appear to be a new source of growth that could propel the share price even higher than its pre-pandemic levels over the long term.

Personally, I’m cautiously optimistic that Whitbread’s share price will recover in 2021. But I would rather wait to see how the firm performs over the next few months before buying any shares for my portfolio. Therefore, the stock is staying on my watch list for now.

The post Will the Whitbread share price recover in 2021? appeared first on The Twelfth Magpie.

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• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Zaven Boyrazian does not own shares in Whitbread. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Tumbling demand

Play on!

Of course, if I’m looking for a beneficiary rather than a victim of the multiple lockdowns, I can look no further than online musical instrument retailer Gear4music (LSE: G4M).

Back in November, I said that the company would continue to benefit from more people spending time at home and that has proved to be the case. 

At £52.2m, total sales were up 30% over the three months to the end of 2020. Overseas sales were a particular highlight, rocketing 51% higher than in 2019. UK sales rose 10% to £23m. What a contrast to Whitbread and other battered FTSE 100 stocks!

All told, gross profit rose 47% to £15.6m, leading the company to predict that earnings for FY21 would now be ahead of recently upgraded market expectations “and not less than £16.5m“. To put that in perspective, earnings for the last financial year came in at £7.8m.

Yes, this was a peak trading period and, yes, the shares are up over 500% since the dark days of March 2020. However, as CEO Andrew Wass suggested this morning, the lifting of restrictions should see other parts of the business — relating to rehearsing and performance — doing well. 

There could be some profit-taking ahead but I’d still back Gear4music to perform for investors over the medium-to-long term.

The post FTSE 100 stock Whitbread still looks a great recovery play to me! appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Back in business

The fact that ITV plummeted in value earlier in the year (and is now in the FTSE 250) wasn’t hard to fathom. Reduced advertising revenue coupled with no filming at its Studios arm motivated investors to run for the exits. Clearly, the recent good news surrounding potential coronavirus vaccines has improved sentiment towards most stocks in general. That includes ITV. 

But it’s more than that. In its most recent update, CEO Carolyn McCall said the broadcaster had seen “encouraging signs” in both of its divisions. Advertising trends were recovering, with year-on-year Q4 numbers likely to be “slightly up“. Most (85%) of its productions had also resumed filming. Elsewhere, Britbox seems to be doing well enough. And the international rollout of the streaming service is “on track“.

Of course, there are still hurdles ahead. The second national lockdown will have undoubtedly hurt revenue and increased costs. And as things stand, there’s no guarantee that restrictions will be lifted on 2 December. With no dividends in sight, ITV is unlikely to be on many income investors’ wishlists.

Even so, I think a lot of this negativity is priced in. Assuming earnings really do recover strongly next year, shares in ITV still trade on a forward P/E of just 9. That could prove a bargain once the £4bn-cap completes its digital transformation. Those perennial takeover rumours could also gather pace if it’s successful in attracting “younger and harder to reach viewers” to its channels.

Growing market share

Like ITV, Whitbread’s shares sank in March. They were hit by travel restrictions that impacted hotel bookings. Also like ITV, it’s benefited from a return of optimism to global markets.

Whitbread has also been boosted by a bullish call from investment banks Goldman Sachs. It thinks the company is well-positioned for a post-pandemic recovery given its focus on the domestic travel market. It has upgraded the stock to a ‘buy’ from a ‘sell’. And the bank also suggested the FTSE 100 member has an opportunity to take market share from competitors.

I’m inclined to agree. Last month, CEO Alison Brittain said the company’s performance since reopening its hotels and restaurants after the first lockdown had been “encouraging“. Importantly, Whitbread was also continuing to trade “ahead of the market“, she said. Yes, it’s the biggest and best-known player in the UK, but that’s still a major achievement. 

Thanks to its £1bn cash call earlier in 2020, the business is likely to weather the ongoing coronavirus storm better than rivals. A stronger balance sheet will also allow it to grow its presence in Germany more quickly. In fact, it announced the capture of “up to 15 more hotels” in the country last month. This brings its total network to almost 70.

Similar to other FTSE 100 stocks, Whitbread’s shares generate no income at present. For capital gains-focused value investors, however, there’s surely more upside ahead. Despite recent positive momentum, the shares are still nearly 30% lower in value than where they were at the start of 2020! I’m keeping an eye on this one.

The post My call on these cheap FTSE 100 shares has been right so far. I think there’s more to come! appeared first on The Twelfth Magpie.

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Paul Summers owns shares of ITV. The Motley Fool UK has recommended ITV. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.