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Investing insights

Carnival, Whitbread and Legal & General – looking beyond the shareholder perks

Some companies offer shareholders discounts and benefits. But this shouldn’t be the only reason for investing. Here’s a closer look at the investment case for three companies offering perks.
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Important information - This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Investing in companies where you use their products or services can provide valuable insights into the positives and negatives of its commercial offering.

That could also help in understanding the investment case for trading its shares. Shareholders, being part owners of the company, are sometimes given perks, benefits and discounts as a way of showing appreciation.

While shareholder perks can be appealing, they shouldn't be the sole reason for investing in a company.

Over time, shares and any income they pay will rise and fall in value, so you could get back less than you invest. If you're not sure if investing in individual companies is right for you, seek advice.

Here’s a closer look at the investment case for three companies that offer shareholder benefits.

Investing in an individual company isn’t right for everyone because if that company fails, you could lose your whole investment. If you cannot afford this, investing in a single company might not be right for you. You should make sure you understand the companies you’re investing in and their specific risks. You should also make sure any shares you own are part of a diversified portfolio.

Carnival – looking beyond the on-board credit

One of the more well-known shareholder benefits is cruise company Carnival’s on-board credit.

But to qualify you need to have over £1,000 in shares at the current valuation. The credit you’ll get also depends on the duration of the cruise and which brand it’s with.

Business is booming for Carnival and the valuation is sitting well below the long-run average. But this reflects significant risks. The pandemic saw its ships lie empty at ports around the world, and the company had to borrow on a massive scale. At about five times this year's underlying cash profit (EBITDA) guidance, net debt is still very high.

Until it returns towards a low single-digit figure, there's unlikely to be a return of dividend payments to smooth investment returns. And while Carnival is well-placed to have a good year, it needs to have a few in a row to make a dent in its debt pile. With consumers under pressure from all angles, that could be a big ask.

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Whitbread – is breakfast included?

If you’re a regular guest at the Premier Inn, it’s worth knowing that buying 64 shares in Whitbread qualifies you for free breakfasts and a 10% discount in Whitbread’s other brands’ restaurants.

Premier Inn is now the UK's largest hotel chain and continues to enjoy an enviable brand position in the value and mid-range hotel sector. That helped improve the profitability of its rooms and drove record levels of profits and cashflows last year.

Sales have come under pressure in 2024, and although demand is expected to improve, that’s not guaranteed. However, in the event of a downturn the company’s strong financial position and focus on optimising the cost base should give some flexibility to adjust prices.

The company’s also well placed to continue with dividend payments and share buybacks. As ever, no pay-outs to shareholders are guaranteed though.

In the UK, we think there's still room to grow, but Germany presents a promising opportunity. While Whitbread is nearing breakeven in Germany, it might take some time before the unit generates significant profits.

We're impressed with Whitbread's continued progress and see long-term potential for both organic growth and further consolidation. The valuation sits below the long-term average and in our view isn't overly demanding. However, the near-term challenges of an economic slowdown remain very real. Investors should be prepared for some ups and downs.

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It’s not only the leisure sector where companies offer benefits to their shareholders.

Owners of at least one share in financial services giant Legal & General (L&G) qualify for some discounts and rewards. L&G has operations across insurance and investments with pretty much every service you can think of in each of those buckets.

Higher interest rates have been causing some trouble for assets under management in the investment management division, but the situation is starting to stabilise.

On the other hand, higher rates are benefiting the larger pension businesses. And the pension risk transfer business is performing well.

Here L&G take on responsibility for paying some, or all, of the pensions from a company's final salary pension scheme (often called bulk annuities).

In return, the group receives a lump sum. That's then managed by Legal & General Investment Management (LGIM) and underpinned with real assets developed by the Capital division (which includes UK housing and infrastructure projects).

This circular flow within the business means L&G can deliver strong margins on its bulk annuity business and is a core benefit to the model. There’s plenty of growth potential in this market, both in the UK and overseas.

The valuation doesn’t look too demanding right now, but reflects relatively weak sentiment toward the sector. The shares do currently come with a 9.2% dividend yield, which is well supported by L&G’s strong financial position. However, no yields are guaranteed and there’s also no guarantee of further dividend payments or an improvement in investor sentiment.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated, estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Derren Nathan
Derren Nathan
Head of Equity Research

Derren leads our Equity Research team with more than 15 years of experience in his field. Thriving in a passionate environment, Derren finds motivation in intellectual challenges and exploring diverse ideas within his writing.

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Article history
Published: 8th May 2024