Whitbread share price: 3 things to watch out for in its Q1 results

On Wednesday, Whitbread will unveil its first quarter (Q1) results, with the restaurant and hotel group’s Premier Inn business under pressure to drive growth after its Costa Coffee unit was sold to Coca-Cola last year.

In the final quarter of 2018, Whitbread saw its UK like-for-like accommodation sales at its Premier Inn hotels business fall 3.2%, with the company blaming its lacklustre end to the year on Brexit, with investors hoping for better things from its upcoming Q1 update.

Premier Inn performance essential for growth

All eyes will be on Premier Inn on Wednesday, with the hotel business key to Whitbread’s future after selling Costa Coffee to Coca-Cola last year.

But investors may be left disappointed by its performance after Whitbread said explained how the hotel business is experiencing ‘further weakening in market demand’ as businesses cut back on putting employees up on work trips and consumers curtail leisure spending.

In its Q1 trading update, analysts from Numis forecast the hotel and restaurant group will see a 6% decline in revenues per available room and a 2% slide in food and beverage sales from its brands like Beefeater, Brewers Fayre and Table Table.

Life without Coffee

Just over year ago, Whitbread announced its plans to demerge its coffee chain, Costa, from the group, with the company eventually selling the unit to Coca-Cola in August 2018 for £3.9 billion.

The price achieved represented a significant premium compared to the value Whitbread would have gleaned if it had demerged the unit instead, with the capital from the deal helping the hotel and restaurant group to expand other operations at a faster pace, particularly of Premier Inn in the UK and Germany.

The sale also allowed Whitbread to return a significant proportion of the proceeds back to its shareholders, as well as helping the group pay down its debts and strengthen its overall balance sheet.

£2 billion share buyback buoys Whitbread share price

Since January this year, Whitbread has undertaken an on-market share buyback programme with the group returning around £380 million to shareholders to-date.

In February, the group announced its intention to run a tender offer, whereby all shareholders will be offered the opportunity to sell some or all their shares back to the company, with Whitbread looking to return up to a further £2 billion via this method.

In the weeks following the announcement, Whitbread’s share price climbed more than 7% to £51.14 a share in mid-March.

Whitbread’s share price is currently trading at £46.92 a share ahead of its Q1 results next week, though investment bank UBS has set a target price at £50 a share, contending that there is a potential upside of 5.6%.