Goodbody on Whitbread

Whitbread will release Q3 results on the 16th of January for the 13 weeks to the end of November. As a reminder, WTB has endured numerous downgrades to earnings in the last 12 months (-20%) owing to the macro uncertainty in the UK and the continued roll out of rooms in the budget branded sector by both Premier Inn and Travel Lodge. This contributed to flat revenue progression yoy in H1, operating profit -8.9% to £255m and PBT -5% yoy (all pre-IFRS). LFL RevPAR in the UK in H1 was -5.0% with London down -1.1% and the Regions (80% of rooms) -5.9%. This compared to overall market RevPAR (STR) in the midscale and economy market of -2.4%.

We do not forecast quarterly but expect H2 RevPAR declines in the UK regions of -4% and -2.8% in London. STR Data remained weak in Q3 with Regional UK midscale & economy -3.1%, although it did recover to -1.3% in November. Conversely RevPAR softened through the quarter in London but still showed good YoY growth of 2.7% for the quarter. This infers weighted market RevPAR declines of -2%. Premier Inn UK typically underperforms the market by 200-300bps.

Key items to look for in Q3

- How is RevPAR tracking versus our expectations in Q3? WTB highlights that every 1% change in RevPAR impacts PBT by £12-15m (3-4%). Although the early part of Q3 was disappointing there was some improvement in the latter part of the quarter. We would expect this improvement continued into Q4. To this end any potential commentary on trading in December and January would very noteworthy (Feb 28th year end).

- Room openings are a significant element of sales growth in both FY20 and through the forecast horizon so progress here is important. The group opened 955 rooms in the UK in H1 and has guided to 3,000 rooms this year so room opening is weighted to the second half.

- Net cost inflation has been guided to £40-50m this year. This is made up of inflation of £70m, dis-synergies a £10m drag and German losses of £12m offset by cost savings of £40-50m. The group generated savings of £25m in H1 and commentary on progress in Q3 would be of interest.

- Commentary on Germany merits some attention. The group has guided to £12m of losses in FY20 and expects to be at 2K rooms at year end (600 at H1). Given the embryonic nature of the significant German investment, confirmation that room openings and losses are inline with expectations will be important.

View – Whitbread is an operationally geared play on the UK leisure and business travel market which should benefit from a more stable political and macro backdrop. Although we will see very limited evidence of an improvement in trends in Q3, we will examine any rhetoric on December and January