The underlying momentum at Whitbread is intact. Revenue was up 13 % in the 52 weeks to 29th February 2024 and underlying profit before tax jumped 36% to £561m.
The hotel business was Whitbread’s driver of record performance. UK accommodation sales grew 12%, helping margins increase to 21.2% and rapid expansion in Germany saw sales surge 62%.
“Whitbread’s served up a set of record beating results for the 12 months ending 29 February 2024. Premier Inn UK has continued to outperform the rest of the market and management are seizing the opportunity to convert 112 restaurants into 3,500 new room extensions. This appears to be a shrewd way to optimise the current real estate footprint and a capital efficient method to help reach the 2029 target of an estate of at least 97,000 rooms,” said Derren Nathan, head of equity research, Hargreaves Lansdown.
Spelling out where Whitbread sees its business going, the company is culling restaurant space in favour of rooms. Whitbread has a portfolio of tired restaurant brands that do not resonate with consumers as well as they used to. To avoid expensive rebranding and marketing activities, Whitbread has decided the best course of action is to convert the restaurants into rooms on a massive scale.
Investors will be pleased to see another buyback and a 26% jump in the final dividend. While this is not reflected in today’s 0.5% gains in shares, Whitbread is entering a period where the food business may be a drag on earnings and require large amounts of capex to rectify.
As highlighted by Nathan, there may also be nagging concerns about the valuation of the stock after such a good run which has acted as a counterweight to shareholder returns announced today.
“Whitbread’s ongoing expansion and commitment to returning cash to shareholders has seen debt levels creep up but not to levels that are overly concerning,” Derren Nathan said.
“The Board’s indicated its confidence in its ability to further drive growth and expand margins with a generous dividend increase and renewed share buyback programme. The valuation has come under pressure of late largely due to wider concerns about the health of demand for hospitality. But Whitbread is a first-class operator that should be able to execute its medium-term goals and ride out any short-term turbulence.”