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Whitbread: don’t freak at geek metrics

By Chris Bailey of Financial Orbit | Thursday 26 January 2017


Disclosure: I own shares in one or more of the stocks mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.


First trading update of my (long) tip of the year for 2017 and the shares are down 4%. Worried? Of course not…the Whitbread (WTB) share price is still nicely above where I recommended it…and frankly we are not even a month into the year. The magnitude of the move today reflects the (to use a wonderful phrase poached from a fellow market observer) wildebeest financial market backdrop we have at the moment…

One small woopsie and panic kicks in. The panic at Whitbread today centres around that most wonderful of geek terms ‘revpar’ - or as all hotel sector aficionados know ‘revenue per available room’.

Whitbread’s Premier Inn is in the middle of a big room expansion (‘we remain on track to open c.3,700 new UK Premier Inn rooms and our committed pipeline stands at around 14,000 UK hotel rooms’) but the bore of this is that whilst you build it and they come may happen over the medium-term, it takes a bit of time to gear up…especially with the slightly iffy current London economy backdrop. So revpar in London fell by 4.2%, but by only 0.4% in the sticks. And the haters hated that.

It is though reasonable to expect time to new rooms or even new hotels to get up to speed (Whitbread said on the call 18 months in London and 3 years in the regions) and I applaud Whitbread for building out: Airbnb may linger but the real soft market share to continue taking is from the 1970s wallpaper B&Bs and that continues apace – the positive 2.2% like-for-like increase in sales at Premier Inn shows that.

Costa punched up a 3% like-for-like sales increase in the 39 weeks to 1 December which is suitably solid and apparently pretty evenly split between food and beverages especially as the company has so far eschewed pushing up prices since January 2016. It noted on the call that they are 'better value for customers...(but versus peers) have a price lever we can pull'. Read that how you will, but in my view a slow inching up of prices seems likely and it will still be cheaper than the Starbucks and Nero’s of this world, let alone your average hipster-friendly shop.

Ok, elsewhere the pub-restaurants 'had a disappointing quarter' but for me the key insight from the conference call was the observation that management had built in 'sufficient flexibility' with difficult to predict consumer confidence, inflation etc. and they 'would not want to be putting out profit warnings...so we quietly confident about the year ahead'.

Underpromising and overdelivering. Never a bad stock market combination. Still happy with this name for 2017…and mine’s a black Americano if you are buying.

Chris Bailey is the editor of Financial Orbit


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