Will Costa Coffee Owner Whitbread Produce A Frothy Interim Update?
Connor Campbell | Oct 18, 2017 13:05
The company – whose other major operation is Premier Inn – has been a bit all over the place in 2017. Twice it surged to highs of £43, only to fall to 9 month lows of £35.93 in mid-September. Whitbread PLC (LON:WTB) now sits at a current trading price of £40.04.
One of those aforementioned highs came the day before the company’s full year results towards the end of April. Yet on the morning of the results themselves things went pretty damn poorly for Whitbread, the stock plunging 7% in the space of a single session.
That’s because the company revealed a 5.7% rise in pre-tax profit to £515.4 million, way, way short of the £543 million expected by analysts. There were other complications elsewhere: revenue per available room at Premier Inn was down 0.6%, while it warned that Costa is not only competing against Starbucks (NASDAQ:SBUX), Café Nero and more artisan cafes, but the increase in ‘food-led operators now offering coffee’. All this overshadowed a healthy 6.3% jump in year-on-year revenue to £3.1 billion and a 1.6% rise in like-for-like sales, alongside a 6% hike to its dividend.
June’s first quarter statement painted a brighter picture, with total like-for-like sales rising 2.9%. That broke down as a 0.7% increase at restaurants, a 3.5% jump at Costa (admittedly significantly lower than the 2.6% growth seen the year previous) and an impressive 4.7% surge at Premier Inn.
More recently it paid £35 million to take control of Costa’s southern Chinese business – which has 252 outlets in the region, including 93 stores in Shanghai – buying the 49% stake it didn’t own from partner Yueda. Coffee is becoming an increasingly big deal in China, so much so in fact that Starbucks is opening new stores at a rate of more than one a day.
In terms of next Tuesday’s half year report, investors will want to see a continuation of Premier Inn’s robust comparative sales growth alongside an improvement from Costa Coffee (which some are pushing to be spun off as its own entity). They may also want some further details on Whitbread’s Chinese ambitions. Total interim revenue, meanwhile, is expected to rise 7.7% to £1.67 billion.
Whitbread PLC has a consensus rating of ‘Hold’ with an average target price of £41.52.
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