Leading sector analyst Geof Collyer has downgraded Whitbread from Buy to Hold, predicting a period of consolidation for its shares but stressing that the long-term value creation of the leisure group remains intact.
Collyer, of Deutsche Bank, said shares in Whitbread have “caught up with a reasonable degree of the best parts of the Whitbread story”.
“We have upgraded our target price in this note but do not see enough to maintain our Buy stance with 9% upside to our new 2,350p level (was 2,200p). After such a strong performance, we can see a period of consolidation for the shares, absent of any corporate activity or material forecast upgrades. As a consequence, we rate the shares a Hold.”
Collyer said he expects Whitbread to have achived or exceeded its five year growth milestones established by chief executive Andy Harrison in April 2011.
“Based on our FY’16 forecasts, we expect (i) room targets to have been achieved in Premier Inn and Hotels & Restaurants’ revenues and EBITA to have grown by +66% and 44% respectively; (ii) Costa EBITA up to £135m (vs. the milestone of £100m), system sales to £1.5bn and stores to 3,625 plus 2,800 Costa Express machines; and (iii) group PBT and DIV +75% and EPS +84%.
“We can see how you could get to somewhere between 2,500p and 3,000p four to five years out, and our long term stance at this stage remains firmly positive.”
He added: “We have tweaked our forecasts to reflect stronger growth for Costa and a marginally reduced growth for Hotels & Restaurants (see table bottom right).”
Collyer said that upside risks for the company include a sale of the Restaurant business, which should lead to a re-rating and a reduction of the pension deficit, or a “significant improvement in the pace of achievement of a mature RevPAR in hotels”. Downside risks include a slowdown in the eating-out market and a price war in budget hotels.
Whitbread is to report its half-year pre-close update on 6 September.
