Berenberg upgrades Whitbread to 'buy'

Analysts at Berenberg upgraded their rating on hotel operator Whitbread from 'hold' to 'buy' on Friday, stating the current price of the stock left the group undervalued given its real estate portfolio.

Berenberg said that following Whitbread's recent weakness, it believes that the risk-reward balance on the company had shifted meaningfully.

The German bank thinks Whitbread's shares were now reflecting a 50% discount on its real estate and while it acknowledged that the stock traditionally traded on the operating performance of the business, it reckons that the real estate underpins the value and that the current level of discount was overdone.

Berenberg, which raised its target price on the stock from 2,400.0p to 2,500.0p as a result of a "slightly improved" cash burn, said its new price target also reflected a 40% discount and implied a 15% upside.

"If we assume a 40% discount to our pre-Covid-19 valuations for the real estate and invested capital in Germany, and a 20% discount on the Premier Inn brand, then this also implies a fair value of £25. We adopt this as our price target for Whitbread," concluded the analysts.