About the company
Whitbread plc is a multinational hotel, coffee shop and restaurant company headquartered in Dunstable, United Kingdom. Its largest division is Premier Inn, which is the largest hotel brand in the UK with over 700 hotels and over 59,000 rooms with a target of increasing them to 85,000 rooms by 2020.
Its Costa Coffee chain has shops across 30 countries and is the world's second-largest international coffee shop chain.
Its other brands include the restaurant chains Beefeater Grill, Brewers Fayre, Table Table and Taybarns.
Whitbread is listed on the London Stock Exchange and is a constituent of the FTSE 100 Index.
Our stance on Whitbread
Shares of Whitbread are down 16 per cent year-to-date, much lower than the FTSE 100 which is down two per cent over the same period. However, looking at the five-year performance of Whitbread we get a different picture. Whitbread returned 133 per cent to shareholders compared to the 22 per cent of the FTSE 100.
The weakness in the shares since the start of the year was mainly due to the negative impact that the global economic slowdown is having on the different businesses within the Group.
Post the Q416 sales and revenues release, we kept our forecasts for FY16 (year-end February 2016) unchanged, in line with market expectations. However, we reduced our price target on the stock before FY16 results (out on April 26) mainly due to a reduction in the PE ratio from 25x to 17x to bring it in line with its long term average.
Despite the reduction in PE ratio, we remain overweight on the stock with a price target of 4530p/share.
Premier Inn
In Q416, we expect revenue per available room (RevPAR) in London to be weaker than previous years due to a softer festive season as Paris terrorist incident kept tourists and shoppers off the streets. We see this as a one off event and do not expect terrorism to remain a threat to tourism in FY17.
Apart from the slowdown in the December period, markets were also disappointed with the projected RevPAR increase of 2.5 per cent for FY17. This is because RevPAR needs to be above 3% to cover for inflation costs.
However, we believe that managements’ growth targets will continue to strengthen its top line even in difficult times.
Premier Inn has over 700 hotels in the UK and 59,000 rooms. Management have set an ambitious target to increase the number of rooms to 85,000 by 2020. Internationally, the group has five hotels in the Middle East and three in India, with further developments in the pipeline and a target for 50 international hotels by 2018.
We are confident management will reach its targets because it has proven to do so in the past. We expect the company to benefit from both higher rates and economies of scale as it continues to increase the number of rooms available.
Restaurants
Restaurant sales should be generally in line with industry. We expect a similar level of sales from the restaurant business in FY17.
Costa
Costa’s like-for-like sales have slowed through FY16, Same reasoning as for the slowdown in its hotel business - shoppers on streets of big cities in December. Christmas of 2015 was a difficult month due to the terrorist attacks in Paris. We expect this to be a one off and sales to increase in FY17.
Conclusion
We believe the company will get through its short term hurdles it is facing and we are comfortable with the long term outlook of the Group. The shares are also trading on an attractive gross dividend yield of 2.5 per cent.
Disclaimer: This article was issued by Kristian Camenzuli, Investment Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.