Leading analysts Geof Collyer at Deutsche Bank, Simon French at Panmure Gordon and Wyn Ellis at Numis take a look at the trading update from Whitbread.
Collyer pointed out it was the first time he thought that Whitbread had cited increased competition in its outlook statement. He said: “The chief executive’s comments were more of a reality check highlighting that at some stage its two major competitors in coffee and budget hotels would recover from a difficult year in 2012.”
He continued: “Whitbread management hasn’t seen any noticeable increase in lfls where Costa competes head-on with its major peer. Growth has come from extending the network of shops and Costa Express machines and on increased customer satisfaction. It is the relative predictability of the group’s business plan that is one of its major selling points to investors over the medium term.”
French said: “The group is on track to deliver FY results in line with expectations and therefore we expect no change to consensus expectations of £350.4m PBT (149.3p EPS). It sees no change to market conditions but expects a more competitive environment. On our forecasts the stock trades on a CY 2013E P/E of 16.2x and an adjusted EV/EBITDAR of 9.4x whilst yielding 2.5%. We remain cautious on current trading and the increasingly competitive environment for budget hotels and hence reiterate our Hold recommendation and 2500p Target Price.
“We estimate Costa is on track to report £1.0bn of system sales this year, although Poland remains a difficult market with LFL sales now negative year to date.”
He said that the group sees no change to market conditions but expects a more competitive environment.
It is on track to deliver its 2016 growth milestones and in FY 2014E, it expects to open c4,000 new Premier Inn rooms and c10 restaurants. In Costa it expects to open c320 net new stores worldwide and >500 Costa Express units. This represents a slowdown in growth at Premier Inn where 4,300 rooms have opened in FY 2013E and at Costa Express where 1,300 units have opened this year.
French said: “The group is on track to deliver FY results in line with expectations and therefore we expect no change to consensus expectations of £350.4m PBT (149.3p EPS). Our forecast of £349.7m PBT (149.1p EPS) is in line with consensus. However we think consensus forecasts for FY 2014E may be slightly on the high side at £390.4m PBT (165.7p EPS) given UK hotel Revpar forecasts and current trading; we forecast £374.5m PBT (160.4p EPS).
“On our forecasts the stock trades on a CY 2013E P/E of 16.2x and an adjusted EV/EBITDAR of 9.4x whilst yielding 2.5%. Our 2500p Target Price values Whitbread Hotels & Restaurants on 9.0x FY 2014E EV/EBITDA and Costa on 10.5x FY 2014E EV/EBITDA. We remain cautious on current trading and the increasingly competitive environment for budget hotels and hence reiterate our Hold recommendation.”
Ellis said: “The Q4 pre-close is positive (group sales up 15%) with Whitbread confirming that it is on track to deliver full year results in line with expectations. There has been some nervousness in the market recently and we believe that today’s update should reassure. The company also says it sees, ‘no change to market conditions, although we expect a more competitive environment. We shall continue to deliver good organic growth and are on track to achieve our 2016 growth milestones.’ We move to HOLD from ADD. Our target price is unchanged.”
