Whitbread (WTB) £31.76

Loss to date: 8.5%

When we initially recommended buying Premier Inn owner Whitbread (WTB) last summer our thesis was the shares were too cheap given the firm’s prospects and the renaissance in travel in general.

Throw in an element of self-help, such as the sale of certain low-yielding assets, and we expected the market to come to its senses and re-rate the company’s shares.

WHAT HAS HAPPENED SINCE WE SAID TO BUY?

The firm has delivered on its side of the bargain, posting third-quarter and full-year results which were in line with if not slightly ahead of forecasts as the UK hotel market continues its post-pandemic recovery.

The group’s German division has reduced its losses as it gains in critical mass, with revenue per available room jumping 20% in the 12 months to the end of February, and is expected to reach breakeven at the pre-tax profit level this calendar year.

If there is a disappointment it is that the firm hasn’t sold as many of its under-performing Beefeater and Brewers’ Fayre restaurants as hoped, although under its new accelerated growth plan just under half the lower-returning restaurants are being converted into rooms which will boost margins.

There is a cost to this plan, with this year’s results due to show a one-off hit of £20 million to £25 million, but by February 2029 the company is predicting incremental profits of between £80 million and £90 million per year.

WHAT SHOULD INVESTORS DO NOW?

Trading in the core UK hotel business has been as good as can be expected, so it now comes down to getting the German business into profit and executing the growth plan.

Investors who are short of patience may want to cut their losses but we think long-term investors will be rewarded with earnings upgrades and a re-rating of the shares, assuming management sticks to the plan.

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