Leading analyst Jamie Rollo at Morgan Stanley says he expects Whitbread to report strong FY results as it raised PBT guidance to the top end of consensus at its Q4 IMS (MSe £490m). He also expects it to extend its Milestones from 2018 to 2020 and will focus in particular on the International divisions.
He said: “However, if it is to sustain its high multiple, it probably needs to prove it can succeed overseas, given UK growth will at some point slow down.”
Whitbread will report FY15 results on 28 April. Rollo said: “We forecast EBIT of £505m (+17%), PBT of £490m (+19%), EPS of 212p (+19%), and a DPS of 79.1p (+15%). Within this, we assume EBIT for Hotels & Restaurants (WHR) of £403m (+16%) and Costa of £130m (+19%). This implies an acceleration in profit growth for WHR (+17% in H2 vs. +15% in H1), but a slight slowdown in Costa (+18% in H2 vs. +20% in H1).
“After its strong Q4 IMS, the company said that it expected results to be at the top end of expectations (back then £488m PBT), so we don’t expect any major surprises in the FY15 figures.
“The company said it would update its thinking on its Milestones with these figures. It announced its 2016 targets with the 2011 final results, and the 2018 targets with the 2013 final results (with three years left on the 2016 targets), so it would make sense to give 2020 targets now to maintain the pattern.
“We think it will extend in a fairly linear fashion in the UK (75k UK hotel rooms to 85k, Costa UK outlets 2,130 to 2,500) but will probably admit its 2018 International targets are already a real stretch and roll these to 2020. On the back of this we recently extended our base case to 2020, leading to a 2020 EPS estimate of 375p and a price target of £58 (note). On our forecasts, the shares are trading on a 20.4x cal 2016e P/E and Cal 2016e 12.6x EV/EBITDA.
“At its Q4 IMS, Whitbread reported Q4 LfL sales of +8.6% for Premier Inn and 0.6% for Restaurants, a strong performance but a slowdown on H1 due to tougher comps in the period. This implies full year LfL growth rates of 9.1% and +2.2%, with total FY sales growth up 15.2% and 3.1% respectively. We forecast H2 EBIT of £178m (+17%), suggesting EBIT margins of 22.1%, an improvement of 110bps over the prior year, a little ahead of H1’s 90bps.
“At the Q4 IMS it had opened 3,196 rooms in the UK, below its 4,500 target, but said would open most of the remaining rooms in the last 2 weeks of the financial year. For FY16, the company planned to open 5,500 rooms and needs to open around this level for the next 3 years to hit its 75,000 target net of closures.
“We think the company will extend its 2018 75k UK room target to 85k by 2020, but that this could include the new hotels in Germany. We also look for more guidance on the Asian business where hotel openings seem to have slowed, and central costs still rise. Whitbread recently increased its capex guidance to £700m for F16 as it continues to invest in freeholds, which funded by bank debt at 3.5% instead of 5% initial yields for leaseholds allow for a c£4m or nearly a 1% annual PBT benefit.
“Costa reported strong LfL sales at +6.9% in Q4, bringing FY LfL sales up to +6.0%. Total FY sales were +16.9%. We forecast H2 EBIT of £78m (+18%), implying an EBIT margin of 15.6%, up 10bps over the prior year and a slight slowdown on H1’s +35bps which was aided by the annualisation of the Shell machine contract.
“At its last update Costa revised its store openings down to 250 for FY16, bringing the estate to 3,350 stores, below its 2016 3,500 target, but on track to hit its 3780-4080 2018 target. Internationally, Costa is well behind its 1,600 2016 store target (1,160 at Feb-15), and its international sales mix (21% vs 33% 2018 target), and while some of this reflects store closures, progress is still disappointing, and we look for an update on France and China in particular.
“For FY 2016 we forecast EBIT of £583m (+15%), PBT of £558m (+14%) and EPS of 240p (+14%), compared to consensus of £580m, £544m and 236p. As the market-leading hotel and coffee shop operator in a strong UK economy with a strong UK roll out story and very high capex levels, Whitbread offers close to guaranteed strong EPS growth. However, if it is to sustain its high multiple, it probably needs to prove it can succeed overseas, given UK growth will at some point slow down.”
