Shares in FTSE 100 hotel giant Whitbread (LSE: WTB) are on the front foot today. That’s despite it saying Covid-19 restrictions continued to make life very difficult for the hotel sector in its third quarter.
Tumbling demand
Total UK accommodation sales tumbled a little over 55% in the 13 weeks to 26 November. Occupancy rates fell to 49.3%. Then again, these headline numbers only tell half the story. Demand over the period has actually been quite variable.
Occupancy levels hit 58% in September, thanks to a bounce in demand in tourist spots. This carried on into October before the introduction of the tier system and the ‘firebreak’ lockdown in Wales.
By November, things were getting tough again. Occupancy levels slipped back to 35% as a second national lockdown in England was enforced. Thanks to the huge rise in infections, demand in key cities such as London was particularly poor.
Of course, since the end of the reporting period, the UK has both opened up and closed down yet again! At the time of writing, a third of the company’s hotels and all of its restaurants are closed following the third lockdown.
FTSE 100 recovery play
So, why are the shares up well over 5% today? There are a few reasons.
Despite the disruption caused by the coronavirus, the FTSE 100 member said that bookings in Q3 were ahead of the “midscale and economy market“. In other words, Premier Inn is doing better than its rivals and grabbing market share in the process. The suggestion from CEO Alison Brittain that the hotel market should recover over the rest of 2021 may also have lifted investors’ spirits.
In addition to this, the company’s finances look far better than some FTSE 100 constituents. Whitbread had net cash of £40m at the end of 2020. If necessary, it also has access to a revolving credit facility of £900m and up to £300m from the UK Government.
Taking this on board, today’s rise doesn’t feel irrational. All told, I continue to regard Whitbread as a decent recovery play for those with time horizons of longer than a few months.
Play on!
Of course, if I’m looking for a beneficiary rather than a victim of the multiple lockdowns, I can look no further than online musical instrument retailer Gear4music (LSE: G4M).
Back in November, I said that the company would continue to benefit from more people spending time at home and that has proved to be the case.
At £52.2m, total sales were up 30% over the three months to the end of 2020. Overseas sales were a particular highlight, rocketing 51% higher than in 2019. UK sales rose 10% to £23m. What a contrast to Whitbread and other battered FTSE 100 stocks!
All told, gross profit rose 47% to £15.6m, leading the company to predict that earnings for FY21 would now be ahead of recently upgraded market expectations “and not less than £16.5m“. To put that in perspective, earnings for the last financial year came in at £7.8m.
Yes, this was a peak trading period and, yes, the shares are up over 500% since the dark days of March 2020. However, as CEO Andrew Wass suggested this morning, the lifting of restrictions should see other parts of the business — relating to rehearsing and performance — doing well.
There could be some profit-taking ahead but I’d still back Gear4music to perform for investors over the medium-to-long term.
