Whitbread PLC (LON:WTB) was upgraded to ‘buy’ while Intercontinental Hotels PLC (LON:IHG) and On the Beach Group PLC (LON:OTB) were downgraded to ‘underperform’ after Jefferies looked at the leisure sector after the COVID-19 vaccine rollout.
Analysts assumed that UK restrictions will be lifted by the third quarter next year, with potential for normality to resume and consumer activity and confidence to pick up.
According to the US investment bank, Whitbread is expected to recover relatively quickly to 2019 levels thanks to its exposure to the domestic and midscale market.
The GBP1bn rights issue returned the balance sheet to a position of strength and, with an estimated 33 months of liquidity endurance, the Premier Inn can take advantage of market share opportunities in Germany and UK.
While its target price was nearly doubled to 4,010p from 2,200p, IHG got a trim to 3,550p from 4,100p as analysts believe the market “has got ahead of itself” and its upside is “more than reflected in valuation”.
However, the Holiday Inn owner is well-positioned in the current backdrop, due to its franchise business model and domestic exposure, and it has got low operating leverage since 95% of profits come from fee business and 80% of fee revenue is linked to hotel revenues.
Meanwhile, travel operator On The Beach is expected to take a longer-term hit after its perception was damaged from COVID-19 refund customer experiences so the target price was cut to 310p from 330p.
Jefferies said a likely material marketing boost will be needed to address this, while customer loyalty may have been impacted by the fact that the firm’s ability to refund is partially dependent on airlines.
Analysts said gaming remains their favourite leisure sub-sector, because online exposure offset retail closures during lockdowns, the summer return of sports fixtures saw a quick bounce back and the US market is a high-growth prospect, although UK regulation remains a near-term risk.
Similarly, pubs, restaurants and cinemas are expected to also bounce back rapidly when the backdrop normalises thanks to their affordability and easy access.
Shares in On The Beach shed 6% to 375p, IHG slid 3% to 4,805p and Whitbread remained flat at 3,183p on Thursday late morning.