The Motley Fool

Is hotel operator Whitbread set to benefit when lockdown ends?

It is no surprise that hotel chains haven’t been doing well recently. When the owner of Premier Inn, Whitbread (LSE: WTB), said this month it would be issuing a £1bn rights issue, it was natural to assume this is to help a poor financial position. But that is only part of the story.

Locked down

According to the company, revenue from accommodation, bars, and beverages has fallen 99%. Not a surprise when they have no guests and almost all their hotels are closed. The company also warned that its financials could be “materially loss-making” for the year. Again, no great shock.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

CEO Alison Brittain said in a statement that though the £1bn rights issue would help liquidity and the company’s cash flow, it is also aimed at boosting Whitbread’s ability to take advantage of cheap investment opportunities.

This kind of bargain hunting is a strategy I am a fan of – if the company can afford it. Whitbread estimates its costs will be about £600m in the coming six months, so at least some of the capital raised will be used to offset that.

It is also still unknown really how the climate will change, and how quickly, after lockdown. It seems unlikely that everyone will be rushing back to stay in Premier Inns the moment restrictions are lifted.

Strong position

That said, Whitbread was in a strong position going in to lockdown. Notably, its £3.9bn sale of Costa Coffee to Coca Cola in 2018 set it up well financially.

Whitbread was also quick to take advantage of various government schemes aimed at helping companies during lockdown. It has about £1.5bn of undrawn credit and has secured waivers on its debt covenants until 2022.

Whitbread has been expanding extensively in Germany where it sees “very significant” opportunities. The capital raised by the rights issue could be put to good use.

Investment case

That said, the investment case for Whitbread is not clear-cut. For one, the company reduced its dividend, which was a sensible move, but does remove its benefit as an income investment.

In addition, we really don’t know what the landscape will look like for hotels and travel as we come out of lockdown. It is possible that demand for business travel, which is a big part of Premier Inn’s business, will be much lower.

On the other hand, if a recession leads to people cutting costs, then Whitbread’s budget hotels may actually benefit. UK holidays and cheap accommodation are two areas that always benefit when people have less money.

I have no doubt the market will eventually pick up again, and Whitbread may be in prime position to benefit. As of now though, my greatest concern is we don’t really know when this will be.

The high-calibre small-cap stock flying under the City’s radar

Adventurous investors like you won’t want to miss out on what could be a truly astonishing opportunity…

You see, over the past three years, this AIM-listed company has been quietly powering ahead… rewarding its shareholders with generous share price growth thanks to a carefully orchestrated ‘buy and build’ strategy.

And with a first-class management team at the helm, a proven, well-executed business model, plus market-leading positions in high-margin, niche products… our analysts believe there’s still plenty more potential growth in the pipeline.

Here’s your chance to discover exactly what has got our Motley Fool UK investment team all hot-under-the-collar about this tiny £350+ million enterprise… inside a specially prepared free investment report.

But here’s the really exciting part… right now, we believe many UK investors have quite simply never heard of this company before!

Click here to claim your copy of this special investment report — and we’ll tell you the name of this Top Small-Cap Stock… free of charge!

Karl 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.