Whitbread Shares Fall by 4.5%, as Firm’s Revenues Drop Sharply During Q1

During the Tuesday trading session on the London stock exchange, the Whitbread shares fell by 4.5%. The stock closed at 2,440p on Monday. However, after the release of today’s trading update, the shares retreated back to the 2,329p level.

The report, issued by the company stated that the firm’s total sales during the first quarter fell by 79.4%. This means that during this period the firm lost roughly 4/5 of its revenues, which is a devastating blow to any business.

In order to face those challenges and stabilize the financial situation of the company, the management has already authorized the rights issue worth of £1 billion. The logic behind this seems quite simple. The firm has already suffered some serious losses and the uncertainty still surrounds the hospitality business. At the same time, the interest rates are at historic lows in the UK. Therefore, the management has decided to take advantage of such cheap borrowing rates and at the same time shore up its financial position.

Also, on the positive side, the statement mentioned that the company was able to reopen 270 of its hotels and 24 of its restaurants. It goes without saying that this can certainly help the business to boost its income and improve its financial performance.

Stock Price Performance of Whitbread and Current Valuations

                                                                                                                                                                                            source: cnbc.com

As we can see from the chart above, the stock was trading very close to the 4,100p level a year ago. After several months of fluctuations, the shares reached a peak of 4,426p by December 2019. From this point the stock started to decline, a trend which accelerated during the March 2020 stock market crash.

By the end of this bear market, the Whitbread shares have already dropped all the way down to 1,808p level. Despite this development, the stock did recover some of its recent losses and by early July 2020, trades at 2,329p level.

According to CNBC, the earnings per share (EPS) indicator of the company currently stands at 113.39p. This means that the price to earnings (P/E) ratio of the company is at 20.54. This suggests that at current prices, the stock is only slightly above the reasonable valuation territory.

The firm did temporarily suspend all of its dividend payments, in response to the enormous challenges of the outbreak of the COVID-19 pandemic. If the firm management eventually restores its total annual payout to the previous level of 99.65p, then the dividend yield for the stock will be at 4.3%, which can be very attractive for income investors.

However, considering the massive loss of revenue, the firm might not be able to maintain payouts to shareholders to the previous year’s levels. One can not rule out that the board might decide to cut those payouts considerably. Therefore, at the moment this stock might not be the best option for growth or income investing.