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There’s little fun to be had in the leisure sector right now. With the entire sector one of the worst hit during the nationwide - and now ongoing local - lockdowns, investors are rightly wary about staying invested in the sector that is clearly struggling.
Whitbread (WTB), owner of the Premier Inn chain, saw UK hotel sales on a like-for-like basis fall a hefty 78% in the six months to 27 August. That led it to announce that it was looking to lay off up to 6,000 people or 18% of its total workforce in a bid to cut costs.
And the ever-changing situation certainly is not helping matters. At its September trading update it had seemed things were picking up. Whitbread reported that 98% of its hotels had reopened by the end of the first half and that trading was ahead of the market, with strong demand in tourist locations. London and other City centre hotels continued to see subdued sales though, it said. But overall occupancy levels had steadily improved on a weekly basis, averaging 51% in August.
Its restaurants business, which operates under the Beefeater, Brewers Fayre, Table Table and Bar + Block brands, was, it said, helped by the Eat Out to Help Out scheme; although August UK total sales, taking into account accommodation and food and beverages, were still down 38.5% on last year.
Back at the tail-end of Summer, chief executive Alison Brittain acknowledged: “Our performance following the re-openings has been ahead of the market, however, it has been clear from the beginning of this crisis that even as restrictions are eased and hospitality businesses such as ours reopen their doors, that demand would be materially lower than FY20 levels for a period of time.”
But things have changed yet again, since then. Restrictions that were eased over the summer have been reinforced in many parts of the country, making trading tricky. Back in September Ms Brittain said the company was “firmly” in the "restore" phase of its response to the crisis, however, as we all know, the situation was only fleetingly ‘firm’, having since deteriorated further as we have since gone into the second wave.
Whitbread first-half results due out on Tuesday will be closely watched. But they are unlikely to give the sector the positive shot in the arm it needs. That is unlikely to come until the threat of the virus and the forced closures can come to an end, once and for all.
What we can expect is for the group's financial performance in the first half of the year to show clearly the impact the closure of the UK business had, from the end of March until the reopening of hotels and restaurants at the start of July, and the closure of its hotels in Germany from the end of March until the middle of May.
In the UK, the vast majority of hotels and restaurants were reopened by the first week of August, and a total of 801 hotels, representing 98% of total UK capacity were open by the end of August. In Germany, all six operational hotels were closed at the end of March, and reopened during May, alongside 13 of the acquired Foremost hotels that were fully refurbished and rebranded during the lockdown period, to bring a total of 19 hotels now open.
Performance trends in Germany have mirrored the UK, with strong demand and occupancy levels in tourist locations, while locations with a greater business skew remained at low occupancy levels. In August, total sales were over 300% ahead, boosted by the acquired Foremost hotels, while occupancy recovered to 54%.
Trading in the first two weeks of September saw year-on-year total accommodation sales remain ahead of the market. Bookings in tourist destinations remain strong, and business bookings growing, albeit from a low base. Whitbread says September and October are traditionally a period when business bookings pick-up after the quiet summer period, however at this point it is too early to assess the impact of COVID-19 on this traditionally busy booking period.
How the most recent UK Government announcements regarding increased local and regional lockdowns are affecting the business, remains to be seem.
Broker Berenberg seems relatively positive though. It has just upgraded Whitbread to buy from hold, on the basis that its analysts believe the current share price leaves the group undervalued given its real estate portfolio.
Berenberg, which has raised its target price from £24 to £25 said its new price target reflected a 40% discount and implied a 15% upside.
Deutsche Bank meanwhile recently reiterated its hold rating and set a target price of £21.50 on the shares.
Whitbread shares are currently trading around £22.90.
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