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It had all been looking so promising back in the August. The sun was shining, home-schooling was out for ever (or so we hoped), Covid infection numbers were under control and there was a real sense that the worst was over.
The government’s Eat Out to Help Out scheme had pubs and restaurants buzzing, City centres were bustling and shop tills were ringing once more. Those brave enough to hop on a plane, did, and everyone else snapped up whatever they could, with the nation’s hotels, campsites and holiday cottages booked out for the duration.
Whitbread reported that 98% of its Premier Inn hotels had reopened by the end of the first half and trading was ahead of the market, with strong demand in tourist locations. Its restaurants business, which operates under the Beefeater, Brewers Fayre, Table Table and Bar + Block brands, was, also fully back up-and-running. Things were picking up and now we’d all been released from lockdown, there would be no stopping us. Or so we thought.
That was until October kicked in and the season of mists and mellow fruitfulness brought in not just the usual autumnal chill, but something new as well - the three tiers. Because no sooner had schools and universities gone back and workplaces started to look more like the old normal, than the situation was all change again. All that summer hope and the still much hoped for year-end festive cheer disappeared into the October mist quicker than you could say ‘summer’s over’.
Today Whitbread showed just how devastating the pandemic has been for its business. In the six months to 27 August, Whitbread's revenue slumped by 77%, following up last year’s £219 million profit with a £724 million loss. And now that the second wave is here and with it a winter of local lockdowns, at least, on the cards, there is no sign that the much-needed year-end pick-up will transpire.
In fact, Whitbread chief executive Alison Brittain said it was almost certain not to. “As we have gone into the Tiering system I would expect that we see a further decline as we go into November and December," she warned.
It is easy at this point to say that Whitbread is a very good example of why you shouldn’t keep too many of your eggs in one basket, as a business or as an investor. Having decided to focus mainly on its hotel business, it divested itself of its lucrative Costa Coffee chain and immediately started building its hotels division.
While Whitbread may yet turn out to be a cautionary tale, you write it off at your peril right now. Its expansion of the German business, and solely through acquisitions, is interesting and worth keeping an eye on. While its UK-focused portfolio of hotels meant it took a beating when Brexit worries loomed large, the development of its brand at the core of ‘old’ Europe seems a sensible move.
Today, Ms Brittain also took the opportunity to highlight the company’s advantageous position regarding its hotels estate, in which so many Premier Inn hotels “can stay open at very low levels of occupancy” because the company owns a “large proportion of our hotels”.
Exactly a year ago Whitbread acquired three hotels in Germany from a private seller operating under the brand Acomhotel, for an undisclosed sum. That was straight after its sale of Costa and part of a clear strategy to refocus itself as predominantly a hotels business. And it is continuing to focus on its expansion in Germany, having signed deals for a further 15 hotels. It now has more hotels operating in Germany than pre-pandemic.
With a steady eye on the growing budget hotel market, plans to bring the existing 29 German hotels up to a total of 68, could leave Premier Inns and Whitbread well positioned when the pandemic is finally over and as soon as business picks back up.
More on Whitbread
Important information: Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. When you are thinking about investing in shares, it’s generally a good idea to consider holding them alongside other investments in a diversified portfolio of assets. Investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.
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