Whitbread (LSE: WTB) shares have been rising recently. In fact the stock is up 16% since the beginning of 2021, although it has only increased 27% in the last 12 months.
I reckon Whitbread shares could be a great recovery stock. Hence I’d buy now for the long-term growth potential. Especially now that the UK’s step-by-step plan to come out of lockdown has been unveiled. The fact that the vaccination programme has been successful so far should help too.
Whitbread shares: an overview
So what does Whitbread do exactly? In a nutshell, it owns and operates hotels and restaurants. I like that it’s Premier Inn business in one of the leading budget hotel brands in the UK. In fact, 64% of Whitbread’s revenue comes from its accommodation division.
The remaining 36% of revenue is generated by its food and beverage business. Whitbread owns restaurant brands such as Beefeater and Brewers Fayre. In fact, I like how the company pitches itself as having ‘family-friendly’ restaurants. I reckon this marketing along with Whitbread’s affordable hotel prices sets it apart from the competition.
The hospitality company is also growing overseas. It has hotels in Germany and the Middle East. So far, Whitbread’s value proposition seems to resonate well with the international community. Expanding the hotel brand internationally is part of the growth strategy.
Covid-19 victim
I think it’s fairly obvious why Whitbread has been a victim of the coronavirus pandemic. The lack of travel and government restrictions has resulted in its hotels and restaurants being temporarily closed.
But I think the main thing is how the company responded to the crisis. Whitbread suspended its dividend, made cost cuts, reduced capital expenditure and used UK and Germany government support packages to survive.
Whitbread’s rights issue in June 2020 raised £1bn. I think this gives the company some breathing room to weather the storm for now.
My view
What I like about Whitbread is the growth potential. It’s expanding in Germany and I should highlight that structurally this a great market for the hotel brand. Just like the UK, Germany has a large domestic market and a fragmented but declining independent hotel share.
I think these are great conditions to expand a low budget, value-focused hotel brand. I should add that in February 2020, Whitbread completed the acquisition of 19 hotels in Germany from Foremost Hospitality Group.
To me this makes sense. I reckon one of the fastest ways to expand into a new market is to acquire an existing business. I expect this growth to continue, which should be positive for the share price. In fact, Whitbread’s Middle Eastern hotels are owned through a joint-venture with Emirates.
The risks
I think Whitbread’s recovery largely depends on the easing of lockdown restrictions. The pandemic is far from over and any delay or setback could weaken the stock.
For now the company has enough cash but it may need to raise further funds if lockdowns persist. This could also dampen the company’s international expansion plans and hence revenue growth potential.
I acknowledge that Whitbread shares may experience some volatility in the short term. But as a long-term investor I’d buy the stock in my portfolio.
