Whitbread slumps on Barclays downgrade

Whitbread shares slumped on Tuesday as Barclays downgraded the stock to ‘underweight’ from ‘equalweight’ and slashed the price target to 3,220p from 4,150p.

The bank said that although the shares have suffered in the wake of the UK’s vote to leave the European Union, there is further downside risk as it is one of the most negatively-affected leisure stocks due to its exposure to business investment. Still, Barclays said it continues to like much about the structural growth opportunities at Costa and Premier Inn.

The bank cut its forecasts 11% by 2017 and said it assumes as de-rating to 13.5x price-to-earnings, versus 12x in 2011/12 during the last UK slowdown in revenue per available room.

It now expects RevPar to be down 3.2% this year and 1.6% in 2017/18. Despite assuming £27m cost savings, the bank’s new estimates are 6% and 10% below Thomson One consensus for this year and next.

Barclays said its downside case is similar to 2008-9 at 2,700p. “Unlike 2008-9, we believe the structural growth story is less supportive today with Costa’s UK net system growth running at 6.4% versus 21% in 2009 and we see risk that the group slows the hotel rollout since around 35% of openings are extensions.”

Nevertheless, the bank said short-term trading may not be too bad, with London likely to see more leisure tourism due to the weak pound. It noted that Kayak and Cheapflights had reported a surge in searches for trips to UK.

Meanwhile over the summer, leisure travel in the UK regions could be supported by more staycations due to sterling weakness.

“We expect the real signs of corporate capex weakness to be more obvious from September.”

At 0840 BST, Whitbread shares were down 5.3% to 3,317p.