FTSE 100

Can the Whitbread share price return to its pre-Covid level?

The Whitbread share price (LON: WTB) has rebounded strongly following the March 2020 crash. As a result, it now trades around 20% below its pre-Covid level of 4094p.

Clearly, the company has been hit hard by lockdown measures. They forced the closure of its estate for prolonged periods over the past 18 months. And, with the potential for further containment measures ongoing, the coming months could prove to be relatively volatile for the company’s stock price.

Recent updates from the firm have shown that its reopening has been somewhat mixed. For example, it reported in its latest quarterly update that demand has been strong for its hotels in tourist locations. However, London hotels and airport locations have experienced more sluggish demand. This trend may persist in the short run as international travel and tourism remains restricted.

Of course, the difficult operating conditions experienced by the budget/value hotel sector could provide a long-term growth opportunity for Whitbread. The budget/value hotel industry in the UK and Germany, where Whitbread operates, is highly fragmented. This means that many of its constituents may not have the financial strength of a FTSE 100 company to overcome the challenges posed by Covid-19.

As such, Whitbread may emerge in a stronger position relative to many of its peers that enables it to exert greater market dominance in the coming years. This may help to position it for growth.

The company’s strategy may further aid its recovery prospects. It continues to add to its estate in Germany, which takes its total open and committed pipeline to 73 hotels and 13,500 new rooms. It is also making cost reductions via a £100m three-year efficiency programme. And, with the continued rollout of premium rooms and refreshed marketing campaigns, it could offer a differentiated service to customers.

Whitbread’s share price continues to trade on a relatively expensive price-earnings ratio. Using next year’s financial forecasts, it has a forward price-earnings ratio of 34. However, due to a strong expected rebound in earnings, this is forecast to fall to 22 using the following financial year’s forecasts.

Therefore, with the ongoing risks faced by the business, it may be a ‘slow and steady’ share price recovery over the long run as opposed to a quick return to pre-Covid highs. However, with what appears to be a sound business model, the prospect of a relatively strong market position and an encouraging strategy, Whitbread’s share price could offer relatively sound long-term prospects versus the FTSE 100 index.

Not Investment Advice Note: Views expressed are those of the writer. The author does not own any stocks mentioned. The article is information, not advice. Share prices can rise and fall. Past returns are not a guide to the future. Please do your own research.

Join the conversation