Leading analyst Simon French has raised his Target Price for Whitbread but said the leisure group is “still overvalued”.
French, of Panmure Gordon, reiterated his Sell recommendation for Whitbread and raised his Target Price from 2644p to 2753p.
“We have increased our FY 2014-16E EPS forecasts by 1-2% per annum following the recent H1 results reflecting a small outperformance against our forecast due to a lower than expected interest charge and lower capex guidance. For FY 2014E we have increased our forecast by 1.1% to £391m PBT (164p EPS) compared to consensus estimates of £390m PBT (163p EPS),” he said.
“The stock now trades on a CY 2014E P/E of 19.9x, an adjusted EV/EBITDAR of 10.8x and yields 1.9%. The current share price implies that Whitbread Hotels & Restaurants (WHR) is valued on the same multiple as InterContinental Hotels Group and Costa on the same multiple as Starbucks Corporation. In our view these are not wholly comparable companies and therefore the stock is overvalued.
“We think trading in H2 will be more challenging as competitors improve their offerings and regain market share. The Q3 IMS on 10 December and Costa Investor Day on 12 December represent potential catalysts for a change in share price momentum. Using more appropriate peer group companies indicates fair value of 2753p and implies c20% potential downside. We therefore reiterate our Sell recommendation.”
French added: “The group faces a challenging Q3 group LFL sales comp of 3.3% (H1: 2.8%) and we believe consensus is too optimistic on RevPar growth at Premier Inn given the increasingly strong performance from Travelodge and Accor (Ibis). We also think management is too optimistic on the long-term growth potential for Premier Inn.
“Given that Costa is already seemingly valued on the same multiples as Starbucks Corporation and Domino’s Pizza Group we see little logic for demerger other than it would then have full control over its international growth ambitions. We think these are currently being thwarted by a lack of capital allocation from the Plc.”
