UBS upgrades Whitbread to 'buy', cites 'attractive' entry point
UBS upgraded its stance on Premier Inn owner Whitbread to 'buy' from 'neutral' on Tuesday as it said the shares present an attractive entry point despite worries about UK revenue per available room (RevPar).
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While it acknowledged that the risk to UK RevPar and earnings in the near term is to the downside at the current share price of around 4,200p, it said this implies a 10% fall in RevPar in 2020 which it reckons is too conservative. UBS has pencilled a much more modest decline of 3%.
In addition, it pointed to share price optionality from German expansion and noted the company's "strong" financial situation, which enables Whitbread to grow in a downturn.
It noted that Whitbread is expecting a £12m EBIT headwind from its German expansion in 2020 and management expectations are only for a positive contribution by 2022.
"At the moment we do not factor the potential positive value into our base case scenario but see German expansion optionality. Furthermore, in our upside case we see freehold property underpinning a further circa £16 per share uplift.
"However, we think it highly unlikely that in the foreseeable future the freehold property value is crystallised given previous management comments."
UBS has a 4,850p price target on Whitbread.
At 1555 BST, the shares were up 3.2% at 4,304p.