Why this hotel owner will buck the cost of living crisis

Premier Inn
Premier Inn

Premier Inn owner Whitbread has yet to fully prove this column’s thesis of April 2020 that it can be a long‑term post‑pandemic winner, but last month’s interim results provided more than enough reasons to keep faith in the hotelier despite the challenge posed by the cost of living crisis.

Rock‑bottom consumer confidence, rising mortgage rates and higher taxes hardly sound like a combination conducive to spending on treats and leisure time.

However, Premier Inn’s value proposition helps the pounds go that bit further in Britain and the brand’s expansion in Germany continues to go well, while news of bookings from airlines and credit card spending data suggest that consumers are still keen to travel after two pandemic‑blighted years.

If that trend continues, Whitbread could be in pole position, especially as key rival Travelodge seems to be flagging under the weight of its debts. It may surprise no one to see the FTSE 100 company’s first‑half sales double year‑on‑year, given the low base for comparison, but £1.4bn in revenues represented a 20pc advance on the equivalent period in 2019, before the virus started to make its presence felt.

That shows the potential in Whitbread’s business model and market position. Better still, that jump in the top line took adjusted pre‑tax profits to a better‑than‑expected £272m, compared with a loss in the equivalent period last year.

Higher wage, energy and food costs are all increasing operating expenses, but Whitbread is gaining some benefit from higher returns on its cash pile and its pension surplus to partially compensate.

A recession would not be helpful, either, but this year’s share price slide at least partially reflects that risk and management’s restoration of the interim dividend speaks of confidence in the future. It was also intriguing to see the share price chart hit bottom at the very height of the Trussonomics panic.

Whitbread can still be a long‑term winner. Hold.

Questor says: hold

Ticker: WTB

Share price at close: £25.98

Update: Restore

Our thesis is not playing out as expected at Restore. Perhaps the market is looking for recovery and turnaround candidates. Perhaps we simply paid too high a multiple of earnings at our entry point. Either way, it may be time to cut and run, even if the business looks well positioned and continues to generate cash.

Three years of patience are yielding a book loss, and an increasing one at that in the wake of last week’s trading update, even though the document and data management specialist is racking up sales and profits that point to a full recovery from the pandemic‑wracked years of 2020 and 2021.

Higher interest rates on its £100m‑plus debts, softer trading in its IT operation and the risk of an economic downturn all represent potential headwinds and could leave a forecast price‑to‑earnings ratio that sits in the low 20s looking a bit exposed.

The fault is ours, not the company’s, but it is time to unplug Restore and move on. Sell.

Questor says: sell

Ticker: RST

Share price at close: 320p

Update: Beazley

This is a bit more like it. A 38pc capital gain from Beazley since our first look at the non‑life reinsurer and Lloyd’s syndicate manager in May suggests we are on the right track and the combination of a bullish trading update earlier this month and a well received £350m placing a few days later means there could be more good news to come.

The third‑quarter update reported both a $120m (£99m) loss estimate for Hurricane Ian, less than analysts had feared, and further evidence of price increases. Just as pleasingly, the FTSE 250 company confirmed its guidance for a “combined ratio” in the high 80s per cent range (anything less than 100pc points to a profit on underwritten business).

Such was Beazley’s confidence that management then raised the fresh cash so the company could rake in additional premiums for business covering property and cybersecurity in particular, to take advantage of the firm pricing environment. That should lay the foundations for growth in profits and net asset value next year and beyond, especially as higher bond yields will boost investment income.

We’ll stick with Beazley. Hold.

Questor says: hold

Ticker: BEZ

Share price at close: 645p

Russ Mould is investment director at AJ Bell, the stockbroker

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