Looking ahead to Whitbread’s half-year results, which are due on 23 October, Jamie Rollo at Morgan Stanley says that the company’s shares have had a strong run but they still offer good value and that consensus FY forecasts are at least £10m too low. He says: “We forecast EBIT of £209m (+12%), PBT of £197m (+13%), EPS of 83p (+15%), and an interim dividend of 19p (+10%). Within this, we assume EBIT for Hotels & Restaurants of £180m (+8%) and Costa of £39m (+39%), reflecting H1 LfL sales growth 3.6% and 7.1% respectively, and strong unit expansion. "The consumer environment in the UK remains fragile so we expect Whitbread to give its usual cautious outlook with regards to economic challenges and variable monthly trading conditions, but with both businesses outperforming their peers we think our H2 LfL sales assumptions of +1% and +2% respectively are conservative. We also think FY consensus estimates for c. £25m EBIT growth are too low when we estimate the impact of new space is c. £30m (we forecast £35m EBIT growth this year). “While the shares have had a good run, we still like Whitbread for its strong internally-driven growth generation, outperformance relative to its competition, the potential upside for a separation of Costa or some of the real estate (albeit the company has not indicated any plans to do this), and for what remains a reasonable valuation (cal 2013 P/E of 14x).” In terms of the group’s Hotels & Restaurants, Rollo says: “We forecast revenue of £707m (+10%) and EBIT of £180m (+8%), with revenue growth for the first 24 weeks already reported (hotels +12.7%, restaurants +5.9%). The slight margin slippage (60bps to 25.5%) reflects the increasing mix of leasehold hotels. At its last update, Whitbread reported PI Q2 L4L sales of +3.2%, with RevPAR +1.9% (LfL sales include hotel extensions and F&B sales on integrated restaurants). “The Olympics had a positive impact on room rates of just over 1% in the quarter so the underlying RevPAR growth was closer to 1%. The outperformance vs the UK hotel market increased to 6.2% in Q2 (5.6% in Q1) driven by improving yield management including the rollout of dual-pricing (this benefit should continue through the year), more advertising, refurbishments, and the woes at Travelodge. We only forecast +1.3% RevPAR growth for the FY, implying +0.5% in H2 (c. +1% LfL sales growth), which we think is sufficiently conservative as comps get easier and Premier Inn continues to outperform. Every 1% on sales is c£5m to EBIT. Whitbread also increased its net room openings target from 4,200 to 4,500, with 1,565 rooms opened in H1. "Whitbread said that it had seen an increase in interest from developers ever since the troubles at Travelodge started. We estimate every 1,000 rooms is c.£5m to EBIT assuming 60:40 leasehold freehold. LfL sales at Restaurants also came above our estimate at +3.4% for H1. While the average price per cover fell 5%, the company said net margins were stable due to good sales of high margin coffee/breakfasts, some selective price increases, and better labour scheduling. For F13 we forecast 1.8% LfL sales growth in Restaurants, or +0.7% in H2, and every 1.5% is c. £3m to EBIT.” On Costa, Rollo forecasts revenue of £314m (+25%) and EBIT of £38.6m (+38.8%), with revenue growth in the first 24 weeks already reported. He says: “Q2 UK LfL sales were +5.7% and system sales +20.8% despite very strong comps. The company estimated that the poor weather in the UK boosted LfLs by 1.0-1.5%-points as consumers are more prone to visit the high street at the weekend when it's raining. Costa opened a net 132 units in H1 and still planed to hit its 350 annual target. The Costa Express roll-out was also progressing well with 782 machines out of the 1,000 target opened to date, mostly from the Shell contract. We forecast F13 LfL sales of +4.5%, implying just 2% growth in H2, a significant slowdown from the +7% in H1 despite easier comps. Every 1% on sales is c. £3m to EBIT and we think forecasts are still on the conservative side here. Overall, Rollo says: “While we would not extrapolate from the strong H1 LfL sales figures, we do think our FY assumption of +2% LfL sales looks light given H1 was +4.3% (or est. +3.7% ex Q2’s weather/Olympics one-offs). We think £197m of H1 PBT (+13%) is reasonable, so consensus FY PBT of £344m (+7%) implies just 1% growth in H2. We recently upgraded our FY PBT estimate to £353m, though this is still conservative we think as it implies a slowdown in H2 PBT growth to 8%. Every 1% on group LfLs is c. £10m to FY EBIT. “We remain positive on the shares: Whitbread’s expansion plan should generate double digit EPS growth for the next 4 years, it is a market leader in its main segments and outperforming peers, it offers upside from a potential Costa or property separation, and it remains attractively valued (cal 2013 P/E 13.7x, EV/EBITDA 8.5x).”