FTSE 100 stock Whitbread (LSE:WTB) just released barnstorming interim figures.
I don’t own any of the shares, but the hotel chain’s great performance tells us much about the state of the economy.
And things are not as bad as we might expect after seeing the relentless negative headlines from the mainstream media.
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In the six months to 12 October, the company achieved an increase in adjusted profit before tax of 44%. And that outcome was even ahead of the directors’ expectations.
Business is booming
The Whitbread business is flying right now. And that’s remarkable because the hotel industry is known for its cyclicality and sensitivity to the general economy.
The company has a decent growth strategy. And it’s building on its well-known brands, the main one being Premier Inn. But people, businesses and organisations just don’t use hotels as much when they are struggling financially.
So if the state of the economy is grim, we can reasonably expect it to show up in Whitbread’s results. But this report is the exact opposite – it’s a blinder!
And the situation tempts me to read across to other businesses. My guess is we’ll see a lot more companies knocking the ball out of the park with positive trading figures in the coming weeks and months.
However, UK stocks have been suppressed. And the flare up of trouble in the Middle East has probably dealt another blow to general investor sentiment.
But if businesses keep reporting good results, the stock market will get the message in the end and a general bull market will likely gather pace. I reckon a major FTSE 100 stock like Whitbread is the sort of business to make the market sit up and pay attention.
An optimistic multi-year outlook
Looking ahead, the Whitbread directors said they are “optimistic” about the outlook for the coming years in the firm’s markets in the UK and Germany. Demand for hotels for leisure and business is strong. And the company has a robust forward-booked position.
They think favourable supply dynamics are set to continue for some time. However, the ongoing decline of independent hotels and “constrained UK room supply growth” is helping the business gain market share.
The Whitbread business looks like it’s cycling higher and the directors seem bullish about the firm’s prospects.
Meanwhile, the chart shows some progress. But there may be more distance for the share price to travel in the years ahead.
There are no guaranties of a positive outcome for new Whitbread shareholders. But the company is well worth deeper research and consideration now for potential inclusion in a diversified portfolio.
One of the biggest risks for investors is the inherent cyclicality of operations. And that means the immediate prospects for the business can turn down again fast if conditions deteriorate.
Nevertheless, I see today’s update as encouraging. And it’s fired me up to look for other stock opportunities alongside Whitbread.
