Thursday, 10 December 2015

Whitbread: trading update thoughts

Back in October discussing the forward prospects for the UK listed hotels-to-coffee company Whitbread I noted:

'That would put prospective profitability nearer £700m and with an EV (non lease adjusted) of over £9bn there is a little bit of potential upside on a (say) x14 EV/ebit multiple.  

Of course this is on something like a perfect execution and of course the company has to deal with various challenges including the UK Living Wage (inducing the first coffee price rise for a few years at Costa). 

In short, today the opportunity for Whitbread investment initially lays sub £45 with a double up at £40 in my view.  I have noted down the levels'

Today's update at face value was 'inline' with the company noting that they were: 

On track to deliver full year results in line with market expectations

Sales update (% change vs. prior year)

Sales 13 wks to 26 Nov 2015
Sales for the 39 weeks to 26 November 2015

Like for like sales
Total sales
   Like for like sales
Total sales
Premier Inn
4.7%
10.8%
4.9%
11.9%
Restaurants
1.7%
3.0%
0.6%
2.0%
Hotels and Restaurants
3.8%
8.5%
3.5%
8.8%
Costa
2.5%
13.8%
3.7%
15.3%
Total
3.5%
10.4%
3.6%
11.1%

Thoughts?  Well the conference call was quite illuminating as to current trading:

‘November has not seen the normal Christmas build’

‘structural tailwind behind our two main businesses has not changed’

‘had a soft August and it bounced back in September’

Blaming the weather: ‘it just takes two or three people out of hundred not to buy a warm jumper…or a hot cup of coffee’

And other thoughts on their two key assets?  Here are a few more notes I made from the conference call: 

Premier Inns -
‘maturity rate of new rooms is very rapid’
89% occupancy in London, 84% UK ex London
Noted on pricing aware.  YTD revpar up 4.2% (market 4.5%), Nov 1.5% (= to market)
Observation that YTD London revpar up 2.1%, why?  Opening a lot of space so balancing new space/value for money etc.
Now at a 10% premium to sector vs recent 20%?  Name-checked Travelodge a lot, their prices up 10-15% rather than increasing space.  ‘Gives us opportunities…sustainability of rates due to the quality of offering we have on the market’


Costa –
Re Costa – ‘don’t extrapolate the 4-5% lfls we have been generating over the last few years as your coffee shops become full’
Noted that Starbucks/Neros hiked prices recently
‘gives us some optionality’ as even cheaper not
‘not in any position to make any announcement about that’
Opening 200 stores not c. 20
Due to slightly fewer China stores (want to get ‘quality sites’) and slightly fewer stores in Esso outlets
Trialed higher prices?  ‘You don’t really test it…you either launch it or you don’t’.

So any update on 'today the opportunity for Whitbread investment initially lays sub £45 with a double up at £40 in my view.  I have noted down the levels' '?  My instinct is not really...clearly there are some transitory issues but ultimately the company is moving in the right direction.  Still buy (more) of any weakness at c. £40. 

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