One FTSE 100 reopening stock I’m avoiding

With the UK economy opening up, there’s been enthusiasm to buy shares in consumer-driven businesses. But here’s one FTSE 100 stock I would avoid… for now.

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Whitbread (LSE:WTB) might seem like the perfect FTSE 100 stock for me to pick up as the UK’s economy continues to reopen. The company owns Premier Inn and a range of branded restaurants and bars. This should allow Whitbread to benefit from people taking UK holidays and going out to eat and drink.

Or should it? A lot of investors had this idea back in February as the UK emerged from winter and bought into ‘reopening’ stocks. One of these was Whitbread and this resulted in its share price flying to around the 3,500 mark.

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Since that time, shares in the FTSE 100 company have fallen to 3,046. Full-year 2021 financials released at the end of last month showed a loss of £1bn for the year and a 71.5% drop in revenue. A tough year but not unexpected because of the pandemic.

The big reopening

The problem for Whitbread is that it won’t benefit drastically from the reopening compared with other FTSE 100 companies. Premier Inn is a major driver of revenue for the company, with locations across the UK, Germany, and the Middle East. However, customers are split evenly between business and leisure. With business travel not recovering to pre-pandemic levels, there won’t be an immediate uplift in numbers here. The company stated that it doesn’t expect this to change until offices reopen in earnest.

For leisure, only 15% of Whitbread’s hotel estate is in coastal and other tourist locations. As a result, its revenues won’t receive a major boost from the ‘staycation’ boom expected in the UK.

On top of this, the food and drink segment of the business is closely aligned with its hotel business. The restaurants are generally located within or next to a Premier Inn. This means that the boom in food and drinks sales expected this summer may not arrive for Whitbread without higher numbers of hotel stays.

FTSE 100 long-term play?

For these reasons, I don’t see Whitbread as a short- or medium-term investment to benefit from the UK economy reopening. On the other hand, I could see it as a potential option for a long-term investment.

The FTSE 100 company does benefit from being well placed as the largest hotel operator in the UK. It is aiming to expand internationally, focusing on Germany where it plans to more than double its footprint from 30 to 72 hotels. Its balance sheet is also particularly strong, with only £46.5m in net debt and cash reserves of £1.25bn.

Whitbread’s share price also hasn’t fully recovered from where it was pre-pandemic at around 4,000p. This means that if the numbers of people staying at its hotels return to pre-pandemic levels and profitability improves, there could be a pop in the share price.

But I don’t see this playing out in 2021. As a result, I will be staying away from Whitbread for now. But I’ll potentially return for another look once the sector is on a stronger path to recovery.

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Ben Hargreaves 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.

Should you invest the value of your investment may rise or fall and your Capital is at Risk. Before investing your individual circumstances should be considered, so you should consider taking independent financial advice.

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