Hotel Group. Currently closed and doesn’t know when it will be able to reopen. May be “materially lossmaking” this year. Seeking investors willing to stump up £1 billion.
Form an orderly queue, ladies and gentlemen. And remember to socially distance.
News that Whitbread is planning a rights-issue gave its shareprice the equivalent of a cold shower after a sleepless night.
It closed down 12%. The group has lost half its stock market value in the last eight weeks.
Why invest in Premier Inn? The sales pitch is novel. It’s all about “future opportunity”.
Whitbread argues that the funds raised will ensure it survives a recession that will sweep away many of it rivals, in the “significant but declining independent hotel sector” in particular.
The thinking is, when the storm passes, Whitbread can continue its expansion.
Whitbread was in undeniably finer fettle than some of its competitors (Exhibit A: Travelodge) going into this crisis, due to the sale of its Costa Coffee brand to Coca-Cola for £3.9 billion in 2018.
It has since secured £600 million of taxpayer-backed funding using the Bank of England’s coronavirus corporate financing scheme, furloughed 27,000 of its 35,000 employees and the business rates holiday delivers a saving of £120 million.
There is some money coming.
39 Premier Inns are currently being used to shelter NHS hospital staff between shifts but mothballing the other 780 is costly. Whitbread is burning through £80 million cash a month.
July 4th is the earliest reopening date. Staycationing Brits offers the hope that there will be some demand for rooms - 92% of Premier Inn’s customers are UK domestic - but Whitbread expects most of its hotels to remain closed or “at low occupancy” until September.
The message to shareholders is: in adversity there’s opportunity. Whitbread expects the rights-issue to be fully-subscribed.
The message to government is: we’re ready to go, we’re waiting for the nod.
Hotels and restaurants (and Whitbread does both) have been among the hardest hit by the lockdown, along with pubs, gyms, cinemas, theatres, airlines, manufacturers and high street shops.
These sectors of the economy remain in a state of enforced sedation and until they are revived there’s little prospect of a broad, strong recovery.
However the pace of the slump shows signs of having slowed in May.
Reading the IHS Markit/CIPS “Purchasing Manager's Index” is still not for the feint-hearted but - amid the job losses, the pessimism and the cancelled orders - it does signal that “the rate of decline in overall business activity eased since April”.
The survey is an imperfect but closely-watched bellwether of what is happening now.
The needle appears to have moved from “catastrophic” to “devastating” but in the current climate that counts as a stronger pulse.
A full-throated bounce back is what everyone is hoping for but this week even the chancellor conceded it’s “not obvious” we’ll get one.
The view of IHS’s Chief Business Economist is that “the recovery will be measured in years not months”.
It’s a view that is commonly shared.
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