Fitch maintains Whitbread's BBB ratings

Hospitality firm Whitbread had its ‘BBB’ ratings affirmed by Fitch on Tuesday, with a stable outlook, as analysts at the ratings agency talked about its strong market position in UK hotels and growing Costa Coffee brand globally.

The FTSE 100 group’s long-term issuer default rating and senior unsecured rating were backed up by its current expansion programme, which Fitch expects “to generate a further improvement in revenues and EBIT profits and margins in 2016, as occupancy rates remain strong on the enlarges rooms portfolio and room prices continue to rise, albeit [at] a more moderate rate than previously”.

Fitch warned that the required capital expenditure for the expansion, as well as significant pension contributions and dividend payments will impact free cash flow into the negative until the 2018-19 financial year.

“It will also mean leverage will increase, although it should remain within our guideline for a ‘BBB’ rating, albeit with now more limited flexibility.

“Whitbread has also reiterated its commitment to maintain a financial discipline compatible with its current rating with a maximum lease-and-pension-adjusted net debt-to-EBITDARP of 3.5x.”

Fitch said the company could also defer or cancel some capital expenditure in the next three years to maintain leverage ratios within the given guidelines.

“The constraints on the company's ratings are the cyclicality, albeit moderate, of the mid-scale hotel business and a lack of geographical diversification, although this is likely to improve over the medium term following expansion in Germany and in emerging markets.”