Will Whitbread give another update on what it intends to do with Costa Coffee during next Wednesday’s Q1 results?
The firm’s 2018 has been defined by the speculation surrounding the coffee chain. From a starting price of £40, Whitbread had fallen to a 4 month low of £36 by early April. However, news that activist investor Elliott Advisors had built up a £430 million stake in the company caused the stock to rocket higher, as the chance of a Costa Coffee spin-off increased exponentially.
This was confirmed during 25th April’s full year results, Whitbread’s hand was forced by the presence of Elliott Advisors and fellow activist investors Sachem Head. The company stated that the demerger likely wouldn’t happen until 2020, with the intention being that Costa Coffee will become a separate listed entity.
Interestingly, however, there is another option in-play. On May 22nd reports came out that the coffee chain was being circled by some heavyweight private equity groups, with the potential for a £3 billion bidding war. This idea was lent credence in early June, as a remuneration policy sent to investors revealed that executives would be rewarded for the split ‘whether that is implemented by way of demerger or by way of the sale to a third party of all or substantially all of one or other of those businesses’.
Though a spokesperson for Whitbread claimed that the focus is on ‘delivering the demerger’, investors will still be looking for clarity from Wednesday’s Q1 update. As for the figures themselves, back in April the company posted a 0.2% increase in full year Premier Inn revenue per available room and a 1.2% rise in Costa Coffee UK like-for-likes – with a 0.4% drop in store sales countered by a 7.2% surge in Express LFLs – so an improvement on both would be welcome.
Whitbread PLC (LON:WTB) has a consensus rating of ‘Hold’ and an average target price of £42.84.
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