Stock of the day 04/12/2015 – Whitbread PLC

Will Whitbread be a Premier(Inn) stock for investors after its Q3 2015 results, or will it Cost(a Coffee) too much?

Things got off to a blockbuster start for Whitbread in 2015; after opening the year at £47.85 the stock had surged to an all-time (and year) intra-day high of £55.77 by the middle of March following a series of positive updates and upgrades to its full year forecasts. However, that full year announcement at the end of April soon pushed Whitbread in the wrong direction.

Whilst the company posted an 18.5% increase in underlying pre-tax profit to £488 million alongside a 19% rise in its dividend to 82.15p and a 13% jump in revenue to £2.6 billion, news that CEO Andy Harrison, whose 5 years in charge saw Whitbread’s value rocket from £2.5 billion to £9.7 billion, would step down in February 2016 caused the stock to plunge to around £50 by the start of May.

The Tory election victory on May 8th helped lift the stock back to the £53 mark, before the appointment of Alison Brittain, head of Lloyds Bank’s retail division, as Harrison’s replacement seemingly displeased investors, pushing the stock below £50 for the first time February by the beginning of June.


(Source: IT-Finance.com 04/12/2015)

The company’s mid-June update only appeared to bring more mixed news, that reveal that Andy Harrison would leave in December rather than February countered by a 4.3% rise in Q1 underlying sales (the stars being a 6.3% jump for Premier Inn and a 17.2% surge by Costa Coffee). This helped Whitbread hit £53 once again, only to have fall back to £50 by the start of July. This volatile trading continued across summer, bouncing between £50 and £53 until the start of August, only for that month’s bout of bearish to push Whitbread to £47 as it entered September.

Things were made worse by September’s second quarter update, which sent the stock to £45 after Harrison warned that it would have to find ways to offset the £15-£30 million cost of implementing the ‘living wage’, including raising prices. It wasn’t all bad news, however, with Costa seeing a 7.3% rise in sales (and a very strong performance in China) and Premier Inn seeing a 3.9% increase year-on-year.

Things began to improve in October, and the company’s interim results in the middle of the month, posting an 11% rise in total half year sales to £1.44 billion alongside a 5.4% jump in pre-tax profit with Costa Coffee and Premier Inn (the latter seeing a 12.6% rise in sales) the highlights, left the stock tickling £50 at the start of November. Yet a series of downgrades (from Numis Securities and Societe Generale specifically) dragged Whitbread all the way to a 2015 (and 1 year) low of £43 by the end of November, only for a few ‘Buy’ ratings (this time from HSBC and Deutsche Bank) to send it back to £47 by the beginning of December. Not that this lasted long, as a downgrade from Barclays lopped off nearly 4% off its value, leaving it at a current trading price of £45.43 (IT-Finance.com, 04/12/2015).

Whitbread PLC has a consensus rating of ‘Hold’ with an average target price of £54.46.