A leading analyst has downgraded his recommendation on Whitbread from Buy to Hold, but laid out a path of how the company’s shares could rise by 85% more than their current value through its growth plan.
Geof Collyer at Deutsche Bank said: “Whitbread has had a great year – upward revision of the business milestones and strong operational outperformance (again). The longer-term growth and value creation story remains very much intact. We have lain out how one can get to 6,250p (+85%) by the end of the current chief executive milestone plan. By developing strong rollout programmes for its hotels in UK and its coffee shops both at home and internationally, and by improving operational performance and positioning relative to their competitive sets, Whitbread should be capable of attractive earnings and dividends growth compounding over the medium to long term in double-digit percentage growth per annum.
“The group has a relatively conservative balance sheet that could allow for opportunistic acquisitions were they to present themselves, and is living within its cash flows, which are forecast to fund some £1.7bn of capex (split 35/65 maintenance and development) over the next five years.”
Collyer said he saw Whitbread as one of the stronger organic growth stories, with probably a more robust business mix than many other stocks in the leisure sector – a confidence underpinned by the group’s five year growth milestones.
He said: “Our analysis of the European hotel space shows that Whitbread should move from the number three player by profit before tax to the number one player over the next four years. This significant shift in the group’s relative importance has yet to be recognised by the market. In addition, the self-help story has some time to run, delivering double-digit earnings and dividend growth over the next three to five years, providing solid compounding returns for investors.
“However, after its significant run this year, up 35% since the April lows, we think that the shares need to consolidate here and pause for breath. We have raised our target price from 3,350p to 3,485p, but the twelve month upside is not enough to maintain our ‘Buy’ stance, so we are downgrading to a ‘Hold’.”
