The FTSE 100 is home to several well-established companies in the hospitality sector. With further easing of Covid restrictions, many non-essential shops and outdoor hospitality have reopened in much of the UK. Indoor hospitality and other entertainment businesses should follow in the roadmap out of lockdown so I’d look to buy the leading shares in the sector.
A FTSE 100 reopening play
One FTSE 100 hospitality share I’d consider is Whitbread (LSE:WTB). It’s known for its Premier Inn hotel chain, in addition to several restaurant brands including Beefeater and Brewers Fayre.
The pandemic created very challenging market conditions for Whitbread. Looking forward, the gradual relaxing of restrictions should increase public confidence in its offer, in my opinion. City analysts expect a recovery in accommodation demand more in the second half of 2021, driven initially by leisure travellers.
With strong vaccine progress relative to many other countries, staycations and UK-focused travel could be more popular than ever this year. Whitbread could outperform budget-constrained independent competitors. I think it could even exit the crisis as a stronger and more resilient business.
However, so much is reliant on government restrictions and risks remain regarding the future path of the virus. Any resurgence in that could lead to further restrictions in the hospitality industry. In turn this could impact Whitbread’s recovery plans.
Besides, the visibility of expected sales and costs remain limited. Further clarity regarding reopening could reduce some of these uncertainty risks.
But despite these concerns, I think Whitbread is well-placed to benefit from a bounce-back in consumer demand. I reckon it’s also the best-run hotel chain in the FTSE 100 and I would consider it for my portfolio.
Cost control boost margins
Another food-related giant in the FTSE 100 I’d consider is Compass Group (LSE:CPG). Compass is the world’s biggest catering company. It supplies meals at offices, hospitals, schools, and the world’s largest entertainment venues.
Share price strength since November helped Compass achieve a 15% gain over the past 12 months. However, it’s still 17% below pre-pandemic levels and has clearly not fully recovered. With many offices and entertainment venues closed, it has been a significantly challenging time for the firm.
As an investor, I think it’s important to look forward and try to see what the market environment will look like in six to nine months. A reopening of the economy should see offices and entertainment venues restart operations.
Despite subdued sales and volumes, Compass managed to improve operating margins. It did so by controlling costs and adapting operations. Continuing to improve margins as volumes gradually return should benefit shareholders in the long term, in my opinion. Also, the pipeline of new business and client retention remains strong.
As with many companies in the hospitality industry, government restrictions could play a significant role. Risks remain as to the future path of the virus going into next winter and respective government actions. Any further lockdowns could significantly impact Compass and the wider sector in the short term.
Rising food prices could create some cost pressures, but I reckon this FTSE 100 catering giant should be able to control costs and is well-placed to grow earnings. That’s why I’d consider it for my Stocks and Shares ISA.
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Harshil Patel has no position in any of the shares mentioned. The Motley Fool UK has recommended Compass Group. 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.