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Whitbread - Dividends up 10%

Charlie Huggins | 26 April 2016 | A A A
Whitbread - Dividends up 10%

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No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Whitbread plc Ordinary 76 122/153p

Sell: 2,682.00 | Buy: 2,685.00 | Change 21.00 (0.79%)
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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 (including like-for-like growth of 3.0%), 11.9% growth in underlying profit before tax (PBT) 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%. The shares rose by over 3% in early morning trading, after the group expressed confidence in the outlook for 2016/17.

The group delivered strong cash from operations of £782.2m, up 9.5%, supporting total capital investment of £724.9m. The group expect to invest a similar amount this financial year. Net debt rose to £909.8m (2014/15: £583.2m).

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.


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.

The 2020 milestones of c.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.

Overall the group say they are confident of making good progress this year.

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 ambitious growth plans over the next four years.

The stock has retreated by circa 25% in the last year, and now trades on circa 15.4x consensus earnings to Jan 2017, which is a little lower 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.

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