Is this FTSE 100 stock a steal right now?

Whitbread stock is rising after better than expected interim results. Charles Archer considers whether to add more of its share to his portfolio.

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Whitbread (LSE: WTB) is a FTSE 100 stock I’ve held for years. And I’ll hope to hold it right up to retirement. That’s because it’s the owner of Premier Inn, Beefeater, Brewer’s Fayre and Table Table. And it also used to own Costa Coffee, before selling the outfit to Coca-Cola in the pursuit of cash to fund further growth. I think this is an extremely resilient brand portfolio that appeals to consumers at multiple price points.

At 3,326p today, its share price is up 173p in the past five days. It’s also increased from when I last considered the stock back in June. And over the past year, it’s up a whopping 58%. Of course some perspective is important. The company was hit hard by the pandemic. Its restaurant chains were forced to close, and overnight hotel stays were banned. On 21 February 2020, the Whitbread share price was 4,769p, and a month later, it had hit a low of 2,341p. And by September 2020, it was 2,062p. So while the share price may have recovered some ground, it’s still 30% lower than its pre-pandemic price. But I think if the economic recovery continues, it could get back there by this time next year.

Interim results

The FTSE 100 stock published strong interim results on Tuesday. Revenues in H1 hit £661.1m, more than double the £250.8m reported in the same half last year. However, this was still 39% below pre-pandemic levels. This was because only essential business guests were permitted to stay in hotels until 17 May, and restrictions weren’t completely lifted until ‘Freedom Day’ on 19 July. But in September, accommodation sales were up 9.7% year-on-year.

And encouragingly, Whitbread reported a loss of only £56.6m, which was £310.8m less than the loss reported last year. And it’s worth bearing in mind that as a hotelier and restaurateur, many of the fixed costs are inescapable. However, the group made a £235.6m profit before the pandemic. And the company’s lenders have banned dividend payments until things improve, which isn’t expected to be until at least March 2023. But I’m a long term investor. That’s no time time at all for a stock I’ll hopefully be holding until retirement.

FTSE 100 stock’s future

Now that the pandemic seems under control (at least for now), Whitbread is finally starting to see some upside. But it’s not immune to the challenges faced by every other FTSE 100 firm. The lack of labour, increased raw material costs and lorry driver shortages are all putting pressure on the company, at a time when it’s seeking to minimise costs. It’s had to spend £23m on increasing salaries and paying out bonuses.

But its expansion into Germany is going well. “Total open and committed pipeline is now at 73 hotels,” and German revenue is up 197.3% over FY20. Room occupancy grew to 47% in Q2, and then to 60% in August and September. And the company remains “confident in our ability to execute acquisitions at good returns in Germany”.

Of course, in this inflationary environment, the current economic recovery remains fragile. And the pandemic is not over yet. Another lockdown this winter would spell short-term disaster for Whitbread. But I think the current price point is still very attractive for me on the balance of risk and reward.

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 assessed. Consider taking independent financial advice.

Charles Archer owns shares of Whitbread. 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.

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