Whitbread shares could fall to $20, says JP Morgan

Whitbread shares have fallen 38% year-to-date, with the stock nose diving after it announced a £1 billion rights issue at the tail end of May.

But analysts at JP Morgan believe that the British hotel and restaurant group could fall even further due to the economic impact of the Covid-19 crisis, with the US-based investment bank issuing a target price of £20 per share, implying a potential downside of -22%.

Whitbread shares are set to close 5% higher on Wednesday at £26.01 per share at time of publication.

Whitbread raises £1 billion to bolster balance sheet

The billion pound rights issue at £15 a share will not only strengthen its balance sheet during these unprecedented market conditions, but also help the hotel and restaurant owner take advantage of cheaper land prices in the UK and Germany in the wake of the coronavirus crisis.

‘Despite the challenges the industry faces, Whitbread’s strategy to drive long-term value has not changed and remains compelling,’ insisted Whitbread CEO Alison Brittain.

‘We have a significant opportunity to continue to build out our pipeline in the UK, along with optimising our large network of hotels by investing in upgraded formats such as our Premier Plus rooms, which are proving very popular with both our business and leisure guests,’ Brittain said.

‘Germany offers an enormous opportunity for structural growth, with a large domestic market and a fragmented and declining independent sector,’ she added.

Whitbread sees full-year profit slide amid Covid-19

Whitbread’s 2020 full-year results saw its pre-tax profit fall 8.2% to £358 million due to weaker UK travel market conditions, with the company opting to suspend its dividend pay-outs to shareholders for the foreseeable future.

‘Covid-19 is expected to result in a very material loss of revenue during 2021 and, despite the actions the group is taking, this is likely, given the group's high fixed and semi-variable costs, to have a material impact on earnings which may result in the group not making any profit during the financial year, with the clear possibility that it is materially loss-making during that period,’ the company said.

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