Whitbread (LSE: WTB) shares have been surging lately. The Premier Inn owner’s shares have climbed 47% since last year and jumped 22% since only March. There aren’t many FTSE 100 stocks that can say that.
The good news keeps rolling in too, including an excellent full-year update. Is the stock a buy at its current price? Here’s what I think.
Let’s start with what happened this year. After dealing with Covid-related issues, full-year results came in April and they were a sight for sore eyes. Not only were year-on-year figures excellent, but the firm showed growth since its last pre-pandemic year too.
So the positive momentum seems terrific. Is this going to continue though? And is this a buy for me?
Well, Whitbread has big plans for expansion. Premier Inn is the largest UK hotel brand and it also has a foothold in the German market. Together, it wants to increase its number of rooms from 72,000 to 125,000. Around 2,000 are expected in FY24.
I think these plans are reasonable. The hotel chain will be helped by the cost-of-living problems, as penny watchers are more likely to want budget stays when travelling. This could be a strong and lasting tailwind.
The firm pays a dividend too, a 2.37% yield at present. Not a huge amount, but decent. And it looks especially good when paired with a £300m share buyback. Clearly, the company is generating plenty of cash and rewarding shareholders with it.
I like the balance sheet as well. A lot of firms that were affected by the pandemic built up large debt piles. Whitbread, however, is actually in less debt than before. That’s especially good as we enter into an era of high-interest rates.
Over 90% revenue
As a bonus, if I were to buy 64 shares or more, I’d get a free breakfast each time I stay at a Premier Inn. A little perk like this is always nice. Although at the current price, I’d be paying about £2,100 for it. That’s a pricey brekkie.
In terms of risks, I feel like it’s hard to say how much the ending of lockdowns helped. That 47% climb did, to be fair, come with the end of the pandemic.
Whitbread’s business – over 90% revenue generated by Premier Inn and the rest from restaurant chains like Beefeater and Brewers Fayre – was badly affected throughout. Maybe the recent surge is just getting back to baseline.
Its forward price-to-earnings ratio is currently 19. I see that as a reasonable price for a stock with such prospects. Although with the FTSE 100 average at around 10, it’s one of the more expensive buys on the index.
Also, the cost-of-living crisis may be a double-edged sword. If people cut back on trips around the country, that might hurt the firm’s bottom line. A possible recession may also mean business trips get reduced as well.
Overall though, I’d have to say I like where this stock is going. In terms of positives, the stock ticks all the boxes for me. I expect I’ll buy some shares in the near future.
John Fieldsend has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2023