Whitbread: The momentum at
Whitbread has kept going since Andy Harrison (ex Lex Services and easyJet)
became CEO in 2010. The main eatery brands are Brewers Fayre and the venerable
Beefeater, but most of the excitement is elsewhere. Costa Coffee has been a
huge success and is all around us on High Streets, trains, stations, pubs and
motorways. In this six months to August 2014 Costa like for like sales grew
another 6.1% with top line growth of 16.9% and expansion abroad looks set to be
the next leg of growth. Also doing very well has been Premier Inns, both
through its own efforts and the self-inflicted financial straits at rival
Travelodge. Premier like for like sales were up 9.6% within overall growth of
14.7% and record 84% occupancy. In the financial year to February 2015, £500m
will be spent on growth (including £415m on Hotels and Restaurants), but cash
generation overall is good with half year cash flow generation at £356.3m,
leaving net debt up by £37.1m at a manageable £467.2m. Whilst the lodging
business is capital hungry, the coffee side has far better cash characteristics
and the debate over demerger (or similar) is never far away, although recurring
good results have tended to dampen the flames of unrest. The debate though is
how much all this is worth?
The interim results showed underlying profit before tax up 18.5%,
with eps up 21.5% to 111.69p. The dividend was increased by 15.6% to 25.2p. So
on consensus forecasts of about 205p, the PE is 20.5x at a 4200p share price.
Dividend cover has been creeping up and if I look to a 2.6x cover the dividend
would be 78.9p yielding 1.9%. Forecasts look to be leaving some scope for
upgrades but at least 10% growth in FY2016 is expected. Whitbread are executing
very well, but on these metrics it all seems a tad expensive, as has been the
case for some time. From here, it seems difficult to see how extra value could
be created by demerger, but the issue will never entirely go away. I would hold
off from fresh purchases but would congratulate those who bought early and are
still holding on happily. (Neil Cumming, 21st October)
These comments are not a personal recommendation to deal. Any
investments can fall as well as rise in value, so you could get back less than
you invest. I may have a financial interest in some of the stocks written
about.
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