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Whitbread - Year-end trading update

Steve Clayton | 3 March 2016 | A A A
Whitbread - Year-end trading update

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Whitbread plc Ordinary 76 122/153p

Sell: 2,468.00 | Buy: 2,469.00 | Change -41.00 (-1.63%)
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Whitbread's financial year ends today, March 3rd and the group has released a trading statement covering the 11 weeks to Feb 11 and also the 50 weeks to the same point.

The final quarter of the financial year has been solid, with all divisions reporting like-for-like (LFL) growth, but, Restaurants apart, at a slower pace than for the previous three quarters. At the group level, total sales rose by 7.7%, compared to 10.4% for the 50 week period. Like-for-like sales for the group rose by 1.7% for the 11 weeks and 3.2% over the longer 50 week period. The shares dropped around 3.5% on the news.

Within the overall data, Premier Inn delivered the strongest LFL sales growth over the 50 week period, at +4.4%, but eased back to +2.2% in Q4. Costa's LFL growth also eased back, from 3.0% in the 50 week period to just 0.5%. The Restaurants division saw growth accelerate toward year end, delivering +2.3% in Q4, an improvement on the 50 week run rate of +1.0% LFL.

Premier Inn grew market share over the year, according to Whitbread, and occupancy remained high at 81.1%, with Revenue Per Available Room (RevPAR) up by 3.6%. The slower rate of growth seen in Q4 is largely a function of a softer London hotel market. In Q4 Premier Inn grew London revenues by 3.6%, on capacity 8.0% higher, with negative RevPAR and occupancy of -3.3% and -1.5% respectively. Regional markets were stronger, with sales rising by 8.3% against a capacity increase of 6.8%.

Costa sales in Q4 suffered somewhat from low footfall on the High Street, and unusually mild weather. Over the 50 week period, Costa saw worldwide sales up 13.1%, with stronger growth in the UK (up 14.1%) than internationally (up 11.0%) and Costa Enterprises grew sales through its Costa Express machines by 12.6%.

In the next financial year Premier Inn will add around 5,500 new rooms, and 5,000 in the following period, around a third of which will be higher margin extensions to existing hotels. Costa will add 200-230 stores per annum and around 1,000 Costa Express machines globally.

The group's capex budget is around £700m per annum and a sale and leaseback transaction is planned to recycle some of the capital currently tied up in the freehold property portfolio.

CEO Alison Brittain confirmed that full year profits are on target and said that Whitbread will continue to invest in its customer propositions and digital capabilities to ensure the group retains its market leadership.

Our view:

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. 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 LFL sales growth in a variety of economic conditions, underscoring the strength of its proposition. 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. Both businesses have growth plans that envisage expansion of around 40-50% in their estates over a five year period.

The stock has retreated by over 15% 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.

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 for more information.