Barclays upgrades Premier Inn owner Whitbread on vaccine news

Barclays upgraded Premier Inn owner Whitbread to ‘overweight’ from ‘equalweight’ on Friday, lifting the price target to 3,350p from 2,500p, arguing that it’s one of the most attractive recovery plays in the sector following this week's vaccine news.

The bank said it now has a greater level of confidence that 2023 can see revenue per available room (RevPAR) back close to prior levels.

"Operating leverage is high, with every 1% change in RevPAR representing circa 6% to group earnings per share in 2022/23, so we upgrade EPS by 43%, leaving us 19% ahead of Bloomberg consensus," it said.

"With growing confidence around a post-Covid future, we believe investors will increasingly look through the next six to 12 months to recovered earnings."

Barclays said that importantly, unlike some other hotel groups, it reckons the recovery back to pre-Covid RevPAR for Whitbread could materialise on a two-year view.

This would come from market share gains, the relative outperformance of budget hotels during a recession, and relative shelter from a structural shift in business travel due to 90% domestic/50% leisure/100% budget exposure.

"In addition, we also think Whitbread is more attractive now than ever for its asset backing (31%-77% potential upside) and Germany optionality," the bank said.