Numis Securities has issued a buy recommendation on Whitbread ahead of its second quarter results on 6 September.
Its price target is £22.00. The broker said: "We expect a positive update from Premier Inn and Costa, but Pub Restaurants are likely to have remained under pressure. Premier Inn had a relatively dull Q1, posting RevPAR growth of just 2.4% and we anticipate some improvement for Q2.
"Costa had a strong Q1 with LFL growth of 4% and, despite the pressure in the High Street, we anticipate another positive set of numbers for Q2.
"Whitbread's Premier Inn is the market leader in the budget hotel segment in the UK and we believe that it is in pole position to benefit from the structural currently evident in the market. In our opinion this growth opportunity is undervalued by the investment community."
Numis argued that a structural change is underway in the UK hotel industry with a clear trend toward branded budget hotels at the expense of independent hotel operators, "particularly at the bottom end of the market (bed & breakfast hotels, guest-houses etc.)".
It added: "Whitbread's Premier Inn is the market leader in this segment and is in pole position to benefit. In our opinion this growth is undervalued by the market.
"We do not believe that the budget segment is immune to economic downturn, but we do believe that it is resilient; furthermore, Premier Inn significantly outperformed both the budget segment and the broader UK hotel market during the recent downturn.
"As such we believe that Premier Inn has defensive growth attractions. Numis also argued that a Costa de-merger should eventually be considered.
"In our opinion such an event may be only a couple of years away, once the brand has clearly demonstrated that it has legs in international markets.
"Costa is now close to achieving profitability in attractive growth markets, such as China."
