Analysts at Morgan Stanley suggest that shares in Whitbread, the leisure group that operates Premier Inn and Costa Coffee, are worth £17.00 – even in “a recession”. In a recent note, the Morgan leisure team, led by Jamie Rollo, said: “We incorporate a UK recession into our forecasts … Although Whitbread has seen no signs of a slowdown, and even accelerating demand in its budget hotels as corporates trade down, we want to be conservative and show that this remains an attractive stock even in a recession. “We now assume a 5% occupancy drop in Premier Inn (RevPAR -2%), -2% L4L sales in Pubs, and -4% L4L in Costa. This takes 9-14% off our EPS forecasts, to well below consensus. Note this is only for illustration purposes, we are not expecting downgrades.… but the downside is less than it might appear … Premier Inn has high EBIT margins (34%), strong unit growth from the roll-out, and 1% on RevPAR is just 1-1.5% to EPS. “Whitbread also benefits from a strong balance sheet, low leasehold exposure, and internal cost savings. As a result, the EPS downside is much less than for other pub or hotel operators, we think, and EPS does not fall even in this scenario.” Rollo wrote that the shares remained good value. He said: “Whitbread’s P/E of 14-15x might not look a bargain, but this is on trough earnings, with a relatively unleveraged balance sheet, and EPS compound annual growth rate is still double digit even on our new forecasts. On EV/EBITDA it trades on 7.9x cal 2009e, close to a trough for asset-backed hoteliers, and a significant discount to other hoteliers. Our £23 bull case implies 3x more upside than our £10 bear case. “Premier Inn will hit 75% of group EBIT this year, on our numbers, and we have done a lot more work on the prospects for growth in the UK budget hotel market, and the resilience of the segment in a downturn. We are relatively encouraged by our findings.” The shares are currently priced at £13.66, capitalising its shares at £2.4bn.