- Hospitality giant’s profits top pre-pandemic levels
- Warns cost inflation will crimp second half margins
- Premier Inn replicating UK success in German market
Premier Inn owner Whitbread (WTB) reported a swing into profit for the first half to 1 September 2022 as the hotel sector recovered and the FTSE 100 hospitality giant insisted demand levels remained robust.
The return of business travel is clearly helping Whitbread, which highlighted ‘strong current trading’ and expressed confidence in the full year outlook.
However, the shares cheapened 1% to £25.85 after Whitbread warned margins were expected to narrow in the second half due to higher costs resulting from inflationary pressures.
TRAVEL AND LEISURE SPEND BOUNCES BACK
Whitbread, the UK’s largest hospitality business with a rapidly expanding presence in Germany, swung to first half pre-tax profits of £307.4 million versus losses of £19.3 million a year before.
This was above pre-pandemic levels and ahead of market expectations as revenue more than doubled year-on-year to £1.35 billion, some 25% above the sales generated in the first half of pre-pandemic full year 2020.
Also benefiting from the bounce-back in travel and leisure spend is holidays group On the Beach (OTB), which said sales for the year to September 2022 were 19% above pre-pandemic levels as the travel industry continued to recover from the Covid crisis.
WHITBREAD SHOWS RESILIENCE
Whitbread said the strong recovery in UK accommodation sales continued during the first half, although food and drink sales remained challenging and 5% behind pre-pandemic levels.
‘We remain focused on maintaining our position as the UK’s number one hotel chain and are well on the way to replicating that success in the German market,’ insisted CEO Alison Brittain.
‘Despite macroeconomic uncertainties, our current trading performance is strong and our business has proven its resilience in previous downturns. With a robust balance sheet and significant growth potential in both the UK and Germany, we remain confident in the full year outlook and our ability to deliver long-term value for all our stakeholders.’
The one fly in the ointment is the surge in costs which Whitbread is facing, which combined with additional spending on IT and marketing to help drive revenue growth, means UK profit margins are expected to narrow in the second half.
WHAT ARE THE EXPERTS’ SAYING?
Greg Johnson, Shore Capital’s travel and leisure analyst, described Whitbread’s results as ‘highly encouraging’, with ‘strong UK hotel demand and the phasing of costs resulting in achieving full year market estimates at the halfway stage’.
Despite higher costs coming through, Johnson said ‘the continued strength in demand means we expect to upgrade full year estimates by circa £60 million’ with Whitbread’s balance sheet remaining its ‘key point of difference’.
Elsewhere, AJ Bell financial analyst, Danni Hewson pointed out Premier Inn has ‘a pretty good proposition for the current times. Despite pressures on household budgets, people will still need to get away from it all and while a family room in a budget hotel might not be everyone’s idea of proper break it is definitely more affordable than jetting off to Spain or staying in an upmarket resort closer to home.’
Hewson added: ‘The return of business travel is also helping the business and all in all, the first half results announced this morning were genuinely impressive.
‘Clearly Premier Inn is doing better than the wider market and the German business, which faced a longer impact from Covid thanks to more onerous restrictions, is also showing signs of real improvement.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Ian Conway) own shares in AJ Bell.
