Morning Note: Market news and an update from Whitbread

Market News

US equity markets rallied again last night – S&P 500 (+0.8%, to its 30th record high of the year), Nasdaq (+1.0%) – pushed on by gains in large cap tech shares. This morning in Asia, markets were also generally firm: Nikkei 225 (+1.0%); Hang Seng (flat); Shanghai Composite (+0.5%). The FTSE 100 is currently trading 0.5% higher at 8,189.

Patrick Harker reiterated the US Federal Reserve’s cautious approach, saying that one rate cut is appropriate for 2024 based on current data. Today’s US retail sales will provide further clues regarding the state of the economy. They are poised to show a slight rebound in May, climbing 0.3% from the prior month, as consumers continue to face price pressures. The 10-year currently yields 4.28%, with gold little changed at $2,320 an ounce.

A key concern for inflation is the shift from capital to labour. We note that Germany’s largest labour union is seeking a wage increase of 7% for about 3.9m workers in the metal and electric parts industries to make up for steep consumer-price gains over past years.

Britain has trailed all other major advanced economies for investment in 24 of the last 30 years, the IPPR said. Sterling trades at $1.2688 and €1.1825.

The oil price continued to edge higher, with Brent Crude currently trading at $83.70 a barrel.

Source: Bloomberg

Company News

Whitbread has today released a trading update for the 13 weeks to 30 May 2024, the first quarter of its financial year to end-February 2025. The statement highlights an improving performance and continued confidence in the full-year outlook. In response, the shares are up 4% in early trading.

Whitbread is the UK’s largest operator of hotels (Premier Inn) and restaurants (Beefeater, Brewers Fayre, Table Table and Bar + Block). Premier Inn has over 850 hotels and more than 85,000 rooms across the UK and Germany. A joint site model means that more than half of the group’s hotels are located alongside its own restaurant brands.  Overall, the business is expected to benefit from the lack of branded hotel supply growth and permanent decline in the independent sector.

The strategy – Accelerating Growth Plan – is seeking to optimise the food and beverage offer through converting 112 and exiting 126 branded restaurants. The group is also planning to unlock 3,500 new room extensions that will see the company reach at least 97,000 open rooms in the UK by FY2029.

During the latest quarter, total group sales were up 1% to £739m, driven by improved UK trading and continued progress in Germany. Having been 1% behind last year in the first seven weeks, the group’s trading performance strengthened during the remainder of the quarter. The business was underpinned by the favourable supply backdrop. On a like-for-like (LFL) basis, sales fell by 1%, made up of a 1% decline in the UK and a 5% increase in Germany.

Total UK accommodation sales were flat (down 2% LFL). RevPAR (revenue per available room) fell by 1.6% to £63.54 and is now 55% ahead of pre-pandemic levels, with total RevPAR 2% behind and 38% ahead of FY20. This was driven by a combination of good occupancy (81.9%), average room rate (£77.59), and estate growth. The group is competitively well-placed to outperform other budget branded and independent operators, as both have become increasingly financially constrained. In the latest quarter, the group enjoyed continued outperformance versus the wider midscale and economy market with a RevPAR premium of £5.62. 

UK food and beverage LFL sales fell by 1% year-on-year with strong breakfast sales driven by high occupancy in the group’s hotels offset by softer trading in a number of branded restaurants.

In Germany, total accommodation sales were up 15% (+6% LFL), led by the increasing maturity of the estate and continued room growth. Total estate RevPAR increased to €57, with the more established hotels RevPAR at €61, outperforming the wider midscale and economy market. Food & Beverage sales were up 2% in LFL terms.

The group’s strong operating cashflow funds the ongoing investment in both the UK and Germany whilst maintaining a healthy balance sheet – net cash less lease liabilities was £298m at the last balance sheet date at the end of February. The £150m share buyback is on track, with £96m of shares repurchased so far.

Looking to the full year, the group now expects net UK cost inflation to be at the lower end of its 3%-4% guidance because of increased cost efficiencies. Whilst the normal booking pattern means the group’s forward visibility remains limited, the forward booked position is positive and the company remains confident in the full-year outlook. This reflects a more encouraging trading performance in the UK, a strong commercial programme and increased cost efficiencies, as well as good progress in Germany. In Germany, the business remains on-track to break even on a run-rate basis during the second half of 2024.

Source: Bloomberg