Whitbread – an investment play on a long working hours culture

26th April 2016


Whitbread has released full year results for the 53 weeks to 3 March 2016 which reveals 12.0% growth in total revenue to £2.9 billion. This includes like-for-like growth of 3.0%, 11.9% growth in underlying profit before tax to £546.3 million, and an increase in the full year dividend of 10.0%.

On a 52-week basis, revenue rose by 10.1% and underlying PBT by 9.1%, news which saw the shares rise by over 3% in early morning trading.

Steve Clayton, Head of Equity Research, Hargreaves Lansdown says: “Costa is busily slaking the nation’s never ending thirst for caffeine; think of it as an investment play on the UK’s long hours work culture.

“Premier Inn is a great product; a clean comfortable room, in a good location at a sensible price. With over 60,000 rooms in the estate, it is the clear market leader in the UK branded budget hotel sector.

“Costa is omnipresent on UK High Streets and highways, with a rapidly growing overseas presence too. Both businesses have ambitious growth plans over the next four years. The restaurants business plays a supporting role to the hotels, but struggles to inspire in its own right.”

“The planned growth of the hotel and coffee estates gives excellent visibility of growth, much of which is independent of the economic cycle. Premier Inn has delivered consistently positive like for like (LFL) sales growth in a variety of economic conditions, underscoring the strength of its proposition. The stock has retreated by around 25% in the last year, and now trades on circa 15.4x consensus earnings to Jan 2017, which is a little cheaper than its longer run average of 16x.

“There are not that many stocks out there offering double-digit organic sales growth. Premier Inn has been slow to gain traction overseas, but the UK estate’s growth has more than compensated. The balance sheet is strong, with plenty of freehold hotel assets, so Whitbread looks capable of funding its growth, without recourse to shareholders.”

Divisional performance

Hotels & Restaurants underlying operating profit was up 11.3% to £446.9m.  Premier Inn grew total sales by 12.9%, like for like (LFL) sales by 4.2%, total revpar (revenue per available room) by 3.1% and the number of rooms available by 9.8%, with a record 5,461 new UK rooms opened in the year.  Total occupancy remained high at 80.9%. Restaurants grew total sales by 3.5%, LFL sales by 0.8%, ahead of its competitors.

Costa’s underlying operating profit was up 15.8% to £153.5m, with total sales growth of 15.9%.  This was driven by UK LFL sales growth of 2.9%, 197 net new stores worldwide and 924 net new Costa Express machines.


HL says Costa UK has enjoyed a good start to the year and Premier Inn is growing share in a flat market, six weeks into the new financial year. However, trading comparators have been impacted by the early timing of Easter and the group will have a much better view on 21 June when they present first quarter results.

It adds that the 2020 milestones of circa 85,000 Premier Inn UK rooms (2015/16: 64,599 rooms) and c.£2.5 billion of systems sales for Costa (2015/16: £1.6bn) remain unchanged. To support these growth ambitions there will be an additional £15m net investment in digital and IT infrastructure in 2016/17.

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