The Whitbread share price has been in fine form so far in 2023 with a 24% rise at Tuesday’s close vastly outperforming the FTSE 100 index as a whole.
Based on the reaction to today’s interim results, the stock could end the year in style.
Ahead of expectations
Thanks to strong demand for hotel rooms in the UK, Whitebread reported a 44% jump in adjusted pre-tax profit (to £391m) in the first six months of its financial year. Interestingly, this was ahead of management’s own expectations.
As a sign of just how strong recent demand has been, total UK accommodation sales were 15% ahead of this period in 2022 and 55% above that seen in 2019.
But it’s not just on these shores that the company is doing well. The £6.5bn-cap also reported “good progress” being made in its plan to grow the Premier Inn brand in Germany. Total accommodation sales here were up 82% from the same period last year, partly as a result of more rooms being opened.
There was also good news for those holding the stock for income. Having generated “significant cash flow” over the six months since the beginning of March, the company decided to hike the interim dividend by no less than 40%.
This increase is arguably more telling than all of the other numbers. Since it’s hard to fudge payouts (I either receive them or I don’t) a big jump in cash returns implies that Whitbread really is in rude health.
Where next for the share price?
Naturally, investors have lapped this up. At the time of writing, the shares are up almost 3.5%. Then again, some of this rise is also likely due to a comforting outlook statement.
Whitbread chose not to alter its previous full-year guidance today. However, it did say that capital expenditure would rise to £500m-£550m from £400m-£450m. The latter doesn’t seem to be bothering many holders.
Perhaps most importantly, the company said that it remained “optimistic” about trading, saying that demand “remains strong” and that the supply of hotel rooms in the UK is likely to stay below pre-pandemic levels for “at least five years“.
No wonder the firm is so keen to continue investing in sites (and has the cash to do so).
All priced in?
As one might expect, there are still risks here. While the cost-of-living crisis doesn’t appear to have put off too many travellers, Whitbread is still exposed to a multitude of factors beyond its control, from higher interest rates to sustained periods of poor weather.
The shares aren’t necessarily the screaming buy they once were either. A price-to-earnings (P/E) ratio of 17 before markets opened isn’t excessive but it isn’t dirt cheap for a consumer cyclical stock.
Notwithstanding this, one could argue that the dividend would compensate for any slight loss of momentum if I were to buy today.
My verdict
After a tricky few years, the share price finally seems to be gaining some positive momentum. Should the wider economy show some signs of recovering from a prolonged period of uncertainty, I reckon the stock will continue to do well.
If I were looking for a blue-chip stock capable of delivering both growth and income, I think I could do a lot worse than invest here.
