Whitbread
Paul Hickman, analyst at Peel Hunt, has said that the market reaction to last week’s Whitbread’s Q4 update was “harsh” as the slowdown in like-for-likes was expected given the strong performance during the same period the previous year.
Hickman said that the underlying performance at Costa was “better than the numbers suggested given the impact on the business from the snow in December”.
He said that some element of caution “is warranted given the fragile consumer backdrop and rising cost pressures, particularly at Costa (where coffee price rises will not be passed on meaning as much as £10m+ of savings elsewhere will have to be found)”.
However, within the context of the overall picture he believes these issues “do not diminish the attraction of the shares at the current level”.
Hickman pointed out that Whitbread has two market leading brands (Costa and Premier Inn) in markets “that continue to offer good growth prospects, both domestically and internationally”.
He said: “The group also has the balance sheet to pursue these growth opportunities. At the current price the shares trade on a prospective EV/EBITDA of c8x to Feb 2012, representing a 10-20% discount against the peer group.”
Hickman rates Whitbread as a Buy.
Enterprise Inns
Hickman said that although shares in Enterprise’s shares had wilted recently, “We are not among those who think that Enterprise’s measured approach to the crisis was unsustainable”.
He said: “The shares trade at a 54% discount to tangible NAV of 200p, and although sector EV:EBITDA of 8.5x only gives 54p, that is 90p in FY12E. We are not surprised that Enterprise is volatile given its gearing, but we believe there is a short-term trading opportunity here.”
He rates Enterprise as a Hold.
Marston’s
Hickman said he believed the recent mark down seen in Marston’s shares (4% on one week and 9% on one month to 96p) “was plain wrong”.
He said: “Marston’s is largely structured for value and is progressing on its two main strategies, the Retail Agreement and the new build managed food pub project. We believe margins will be relatively protected because its food business is immature, giving it particular leverage with suppliers.
“It may have conserved its resources during the cheap finance period in the mid-2000s, but it has a stronger balance sheet as a result. The underlying business has traded perfectly reasonably for the last two years, and we have no reason to believe it is likely to decline now.
“As a result, we believe the trading statement on 16 March will be a catalyst for a reassessment of the value, now on a lowly 8.8x PER and yielding 6.0%.”
He rates Marston’s as a Buy.
