The Covid-19 pandemic has affected all of us in a way we probably never thought would or could happen. That’s very true for investors. But when a market crash occurs, there are opportunities to be had.
Whitbread (LSE:WTB) is the UK’s largest operator of hotels and restaurants. Its brands include Premier Inn, Brewers Fayre and Beefeater. I believe Whitbread could be a steal at its current bargain price.
Market crash opportunity
Hotels and restaurants suffered massively when the government imposed a lockdown between March and June. The easing of restrictions and reopening of hotels and restaurants will have been welcomed by patrons and business owners alike.
Whitbread’s share price has decreased by over 40% year to date due to the market crash. Its current per-share price is hovering near 2,300p. But this is better than its rock bottom 1,808p back at the height of the crisis in March. Things are looking up, with many of its hotels and restaurants now reopened and the remainder expected to reopen during this month and next. Its current price-to-earnings ratio sits at just over 17.
Trading update and past performance
A Q1 trading update was released in early July. Whitbread confirmed that over 270 UK hotels and 24 hotels were open at that time. It took the lockdown as an opportunity to refurbish 13 new hotels and rebrand them as Premier Inn in Germany. It now has all 19 operational hotels open in Germany. Whitbread is attempting to replicate its UK success with Premier Inn on the continent, which could prove key in its future growth plans.
Naturally sales figures were affected by the mass closures of its estate. But in June, Whitbread successfully completed a £1bn rights issue to maintain financial flexibility, which has strengthened its balance sheet. During the market crash, other companies have adopted similar strategies, which is understandable in unprecedented times, so this isn’t a concern for me.
Back in May, Whitbread announced its latest full-year results. Despite seeing lower profit than the previous year, it still recorded over £350m worth of profit. An increase in revenue was a positive takeaway despite the report consistently pointing towards weak market conditions.
My verdict
What draws me to Whitbread is the fact that it possesses such a strong brand in Premier Inn. It also possesses the financial might to weather the storm from the market crash and continue to invest and grow Premier Inn, which is its primary business. As I mentioned earlier, the German expansion excites me, but it is not ignoring the UK market and continues to plan for further locations domestically.
Whitbread utilised government support during the market crash, which I think was shrewd. Staff were placed on furlough where needed and the grace of business rates for a year saved it £120m. I feel that such an established business, with what I class as a top tier brand at the forefront of its offering, is a bargain at the current price. I foresee a rise in its share price as I believe market conditions will normalise over the coming months and next year.