Jefferies downgrades Whitbread as it highlights growth of room-sharing economy

Jefferies downgraded Whitbread to ‘underperform’ from ‘hold’ and cut the price target to 4,100p from 4,300p.

“We argue the rapid growth of the room-sharing economy will negatively affect Whitbread because of its focus on the expansion of Premier Inn in greater London, which we think is the area most at risk.”

Jefferies said Whitbread is making a big bet on the continued growth of the London budget hotel market, with plans to increase the proportion of rooms within the M25 from around 13% of the total in 2010/11 to around 27% in 2018.

At current levels of profitability, this means the region would generate approximately 40% of divisional EBITDA by then.

Jefferies reckons this strategy puts Whitbread at risk from the rapidly growing room-sharing economy.

It said that according to PWC, London has 141,500 hotel rooms with a further 7,000, or 5%, to be added in 2016. In addition, according to independent website InsideAirbnb.com, the largest room-sharing site had 25,000+ listings in September 2015, more than double the year before, and adding at least 7% supply.

“This very high supply growth is likely to put pressure on revenue per available room,” said Jefferies, which cut its RevPAR growth forecasts from 3% to 2% in 2016/17 and from 3% to 1% in 2017/18.

“We think any evidence of falling RevPAR growth because of the impact of the room-sharing economy would lead to a de-rating of the shares.”

At 1207 GMT, Whitbread shares were down 0.2% to 4,601.22p.