No Room At The (Premier) Inn For Whitbread?
Spreadex | Jan 11, 2018 11:31
Stock of the day: Whitbread PLC (LON:WTB)
The leisure and hospitality company was all over the place in 2017. Despite a few wobbles the stock managed to twice cross £43 in the first half of the year, with those late April and early June spikes the best price Whitbread had seen since the previous September.
Yet from there the Costa Coffee-owner lost its way, tumbling to an 11 month low of £35 by mid-November. It has since recovered, but is still a way away from its springtime levels, with Whitbread now sitting at a current trading price of £38.58 (Spreadex,
The firm’s most recent update came towards the end of October, as it posted it’s a mixed bag of half year results. There was no problem with the headline figures: group revenue was up 7.4% to £1.67 billion, while statutory pre-tax profit surged 19.9%, from £264 million to £316 million.
However dig into the respective performances of Premier Inn and Costa Coffee and some problems begin to appear. For the former it was that its 1.8% rise in UK like-for-like revenue per available room trailed the 3.5% growth seen for the midscale and economy hotel market as a whole; still, a 2.8% increase in average rate per room to £65.40 and a 26.5% increase in statutory pre-tax profit to £295 million meant it was the preferred sibling when compared to Costa.
That’s because the coffee chain had a rather lacklustre first half, managing a measly 0.6% climb in like-for-like sales, a huge drop off from the 2.3% increase posted the year previous. And that wasn’t even the worst part – rising costs seriously damaged Costa’s statutory pre-tax profit, which plunged 9.8% to £59 million.
Costa’s performance is made all the more interesting given what happened just before, and not long after, October’s interim results. On 10th October Whitbread announced it had acquired 40% of its South China joint venture from its partner Yueda for £35 million, a move CEO Alison Brittain labelled an ‘exciting step’ in the company’s ‘ambitious growth plans for China’.
Then, in early December the stock was rescued from its post-HY slump by the news that activist investor Sachem Head Capital Management had a 3.4% in the company, a reveal that immediately reignited rumours that Costa Coffee could be spun off from the Whitbread mothership.
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So, there might be a lot hanging on what kind of figures Costa posts for the third quarter – not great news, then, that forecasts have like-for-like sales falling 0.5%. As for Premier Inn, the hotel chain is set to see a 1% drop in Q3 revenue per available room, a sharp shift from its half year performance.
Whitbread PLC has a consensus rating of ‘Hold’ alongside an average target price of £40.79.
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