Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.

Whitbread could fall further after 2021 profit warning

The British hotel and restaurant owner has warned on its 2021 profits, with analysts from JP Morgan believing the stock could fall as low as £20 per share amid the Covid-19 crisis.

Whitbread shares have fallen more than 25% since announcing its £1 billion rights issue last week, with the stock capable of falling further after its management warned of a potential loss in 2021 due to the impact of the Covid-19 pandemic.

The billion pound rights issue at £15 a share will not only strengthen its balance sheet during these unprecedented market conditions, but also help the hotel and restaurant owner take advantage of cheaper land prices in the UK and Germany in the wake of the coronavirus crisis.

‘Despite the challenges the industry faces, Whitbread’s strategy to drive long-term value has not changed and remains compelling,’ insisted Whitbread CEO Alison Brittain.

‘We have a significant opportunity to continue to build out our pipeline in the UK, along with optimising our large network of hotels by investing in upgraded formats such as our Premier Plus rooms, which are proving very popular with both our business and leisure guests,’ Brittain said.

‘Germany offers an enormous opportunity for structural growth, with a large domestic market and a fragmented and declining independent sector,’ she added.

Trouble ahead for Whitbread

Whitbread’s 2020 full-year results saw its pre-tax profit fall 8.2% to £358 million due to weaker UK travel market conditions, with the company opting to suspend its dividend pay-outs to shareholders for the foreseeable future.

‘Covid-19 is expected to result in a very material loss of revenue during 2021 and, despite the actions the group is taking, this is likely, given the group's high fixed and semi-variable costs, to have a material impact on earnings which may result in the group not making any profit during the financial year, with the clear possibility that it is materially loss-making during that period,’ the company said.

Whitbread shares closed 5% lower on Tuesday at £24.51 per share.

JP Morgan predicts Whitbread shares will fall further

Analysts at JP Morgan reacted to Whitbread’s disappointing set of results accordingly, reiterating its ‘underweight’ rating for the stock on Tuesday.

The US-based investment bank also lowered its target price for Whitbread to £20 per share, implying a potential downside for the stock of 18%.

Meanwhile, analysts from Shore Capital took aim at the company’s massive capital raise, given that the business has a relatively low debt pile of £323 million at the end of February.

‘Even so, Whitbread appears well positioned to drive further market share gains in the UK and perhaps more telling accelerate its expansion plans in Germany, where timing to acquire assets could be fortuitous,’ Shore Capital said in a note.

‘Although Covid is likely to be detrimental to operating metrics for the foreseeable future it arguably lengthens Whitbread's expansion runway at a time it felt to be shrinking; which could be beneficial to longer-term valuation metrics.’

How much does it cost to buy UK shares with IG?

There are three ways to ‘buy’ UK shares with IG: spread betting, trading CFDs or buying physical shares. The cost will depend on which method you choose. The table below illustrates how the costs to get exposure to £10,000 of Lloyds stock, which is equivalent to 16,000 shares (quoted at 62.5p a share).

Remember, spread bets and CFDs are derivatives, which come with higher risk and reward than investing.

Cost to get exposure to Lloyds stock

Spread betting CFD trading Share dealing
Action Buy £160 per point Buy 16,000 share CFDs Buy 16,000 shares
Capital required to open £2000 £2000 £10,000
Total fees £20.88 £20.88 £16

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Note: Amounts do not include overnight funding charges and taxes. Spread bets are not subject to tax. CFDs are free from stamp duty, but subject to capital gains tax. Share dealing is subject to both stamp duty and capital gains tax.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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