Whitbread - Vale Andy Harrison...

Whitbread (WTB.L): So, farewell Andy Harrison and thanks for a job well done. All that shareholders wish for is that Alison Brittain can continue the good work, having made her name in retail banking. Today’s interim results, to 27^th August 2015, show revenue up 11.3% and underlying pre-tax profits up 13.8% at £291.3m. The headline pre-tax profits were up 5.4% to £254.9m, but after £25.2m of exceptionals relating to disposed onerous leases and accelerated IT amortization. The operating profit split shows Costa up 28.4% at £67.3m and Hotels & Restaurants (driven by Premier Inn) up 10.8% at £249.4m. Eps were up 14.0% at 127.3p and the interim dividend is up 13.1% at 28.5p. The Group return on capital edged up by 10bps to 15.9%, whilst net debt rose from £583.2m, to a still manageable £725.9m. The group re-iterated that they are on track to meet their 2018 and 2020 growth milestones. At Premier Inn these were to reach 75,000 rooms at 2018 and 85,000 by 2020, with the current score at 60,000, with c4,500 in the second half pipeline. Capex for this year is guided at £700m, whilst high cash flow conversion saw cash generation of £374.1m in the half year. Premier Inn International continues to make progress but still lost £3.0m (1H FY2015: £3.5m loss), whilst Premier Inn Germany puts out the first beach towels in March 2016. Costa continues to roll out at home and abroad, with UK sales up 16.5% at £453.5m and International sales up 14.2% at £61.1m. The International side moved into a small £1.6m profit, mainly due to pushing £2.0m of revenue investment into the second half. A hot topic for consumer stocks at the moment is the roll-out of the National Living Wage, which will add £15m-£20m to Whitbread’s annual costs but be mostly absorbed by cost efficiencies and economies of scale.

So that all seems well and good, but the devil is still in the valuation. The visibility of growth is good and execution under Andy Harrison has been reliable. However, we do now have the uncertainty of management change. At 4820p, the shares are off their 2015 peak of 5475p, but on FY2016 eps forecasts of 240p that is a PE of 20.1x for growth in the 12%-14% range. Holding cover at just over 2.5x suggests a dividend of 91.5p for a yield of 1.9%. So, arguabIy, I was wrong to be cautious a year ago at 4200p, but sticking to my view in April, at 5330p, has turned out better. I still feel that the rating is too high for the growth achieved, despite the steady growth ambition laid out to 2020. So I will stay in the nice Caffé Nero round the corner and remain on a watching brief for a better time to buy in. (Neil Cumming^, 20^th October 2015)

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. www.dividendpower.co.uk or e-mail at info@dividendpower.co.uk  Twitter:  @DividendPower