A leading analyst said he expects Whitbread to report solid like sales growth of 3%, in line with H1 when it updates the market on 10 December, but that growth across its restaurants will be flat due it being underrepresented in London.
Jamie Rollo at Morgan Stanley said: “At the current valuation we think the shares are fully valued with no room for disappointment. We forecast group LfL sales of +3%, with Premier Inn LfL sales +4%, Costa +3% and Restaurants 0%. This would be in line with H1, with a stronger mix from Premier Inn due to a stronger UK hotel market, and we think the Costa investor day in December is being more eagerly awaited than these results.
“We see WTB as a high quality investment, but trading on cal 2014e 18.5x P/E and 11x EV/EBITDA (10% higher pension-adjusted) we think it is pretty fully valued. The main risk we see is that strong sales growth may not convert to the same pace of profit growth given the growing mix of leasehold hotels and international coffee shop expansion, where margins are much lower, and that the market has not factored this into forecasts.”
In terms of Costa Rollo forecasts UK LfL sales +3% in Q3. This would be in line with the +3.1% in Q2, though growth was dampened by the hot weather, but Q3 faces tougher comps.
He said: “We find this division very hard to forecast so have not made any heroic assumptions. Our F14 forecasts assume LfL sales growth of 4.3%, so LfL sales only have to be +3% in H2 to meet our forecasts. Every 1% is c. £3m to EBIT. Costa expects to open 300 new outlets this year and 850 Express machines, and it had opened a net 153 shops in H1 and rolled out 582 machines at H1 so appears on-track.
“We await more guidance on margins, particularly International margins, given the company expects International system sales to grow from 22% to 33% 2013-18 (i.e. 45% of new sales), but Costa International margins are very low and it made a small loss in H1.”
Rollo expects zero LfL sales across the group’s restaurant estate, in line with H1.
He said: “The Coffer Peach tracker, which tracks LfL sales at pubrestaurants, showed a 1% improvement in October and +0.4% in September, but with London driving the growth where Whitbread is under-represented. For FY13, we also forecast zero LfL sales, which implies zero growth in H2, and every 1% is c. £3m to EBIT.”
