Whitbread (LON:WTB) have announced a £1 billion rights issue to help see them through the coronavirus lockdown and ensure liquidity when restrictions are lifted.
The announcement came alongside preliminary results for the 52 weeks to 28th February which saw a modest 1.1% increase in revenue to £2,072m.
However, since the end of the period, Whitbread have been forced to close all of its hotels and outlets due to the spread of COVID-19, and now require a capital injection to see them through the crisis.
Whitbread shares fell over 12% following the rights issue announcement.
“Whitbread is at the sharp end of the coronavirus crisis and it is no surprise that it has come cap in hand to shareholders for the cash to tide it over to better times. To persuade investors to stump up £1bn of new equity, it has had to offer the shares at a big discount to an already Covid-hit price,” said Tom Stevenson, investment director at Fidelity Personal Investing.
Whitbread’s brands include Premier Inn, Brewer’s Fayre and Beefeater, and their model had seen improved trading in H2 2020FY, before the company was forced to close outlets and furlough 27,000 staff.
“Whitbread’s model of providing budget Premier Inn hotel rooms next to one of its own pubs to provide dinner and breakfast has proved a winner with families and value-seeking business travellers alike,” Tom Stevenson said.
“Occupancy and revenues per available room, the key measure for a hotel chain, have risen strongly over the past ten years. But in lockdown, its fixed costs have to be paid while its revenues have dried up completely. Despite the government’s furlough support, it is an unsustainable situation.”
Stevenson went on to explain the discount Whitbread had to offer investors in order to drum up support for the rights issue, given the uncertainty in the hospitality sector with a backdrop if COVID-19.
“Shareholders are being offered one new share at 1,500p for every two they already own. Before today’s announcement, these were trading at 2,843p. So even accounting for the dilution implied by the issue of new shares, that is a sizeable discount that reflects the continuing uncertainty of life during and after Covid,” Stevenson said.
The Whitbread rights issue is fully underwritten by JP Morgan and Morgan Stanley.