Derek Pain: Doubts, but let's keep faith with Whitbread

No Pain, No Gain

Once again, the Whitbread leisure group is dividing the City's scribblers. Last week's full-year figures, which I regard as impressive, seem to have provoked a yawning chasm among analysts, with some maintaining that the shares have had their day and others that, despite their exotic progress, they are still worth buying.

What has alarmed some is the group's ambitious expansion plans. Its chief executive, Andy Harrison, does not believe in letting the grass grow under his feet.

Mr Harrison has decreed that the Premier Inn budget hotels offshoot should add another 45 per cent to its domestic room stock in the next five years – and over the same period he aims to double Costa Coffee sales to around £2bn.

His bold plans to enlarge the group by 2018 come on top of an adventurous development, already in train, to dramatically increase the two operations by 2016.

Mr Harrison said : "The exciting organic growth opportunities, together with a clear focus on returns, will continue to create substantial shareholder value."

But it seems some observers are not as optimistic as Mr Harrison, who used to navigate the budget airline easyJet. They feel his desire for growth could lead, at best, to stagnation. On top of expansion worries they cite the possibility that the nation's economic straitjacket will damage Whitbread's consumer-focused operations.

Readers will recall that when the former brewer, recruited to the No Pain, No Gain portfolio in the summer of 2008, rolled out an earlier trading update, many analysts felt the good days were already over as customers cut back on spending, and advised a selling stance.

Ever since the financial crisis enveloped the country, the group has not been short of sell advice. Yet over the past five years, as the company happily points out, average annual growth in sales has been 11 per cent, earnings per share 13 per cent and dividends 12 per cent.

During the same period, the shares have been as low as 850p. They are, as I write, at 2,656p.

Whitbread and the Booker cash-and-carry chain are the undoubted stars of the portfolio. It descended on the coffee shops, hotels and pub/restaurants group at 1,105p a time. Against the worries about Whitbread's prospects is the undeniable fact that, once again, it shrugged off the impact of recessionary influences last year.

Pre-tax profits came out at £355.3m against £305.8m, with the year's dividend increased by 12 per cent to 57.4p. Revenue advanced 14.2 per cent, and group debt was trimmed.

Ahead of the figures, the shares were strong. But once the results were published, the price fell more than 100p before recovering. Clearly, the share response reflected some advanced favourable publicity and the battle between analysts.

As The Independent pointed out last week, one voice raised against the group was the City investment house Investec. It says sell with a 2,000p price target. Stockbroker Liberum Capital is on the other side of the fence: it regards the shares as a top medium-term pick and loves the proposed expansion.

I intend to retain Whitbread in the portfolio. But it is silly to ignore the doubters completely. Although I feel the group is on the right track and will continue to progress, there is clearly a danger of dilutive expansion.

So, I have put a sell price on the shares. Should they fall to 2,100p, the portfolio may well dump them. After all, such a price would still represent a handsome result.

My basic instinct suggests the shares will continue to advance – not at the speed of the past year but certainly topping 3,000p. Their current peak is just below 2,700p.

One possibility that seems to have evaporated in recent times is that the group will sell – or float – its Costa Coffee side.

The former Whitbread finance director Chris Rogers is now in charge of the coffee pot. If ever a person was well-equipped to mastermind a flotation, it is he.

The speed of Costa's growth since Whitbread dropped beer for coffee is remarkable, and I am sure the temptation to cash in on its rise to the top of the British coffee shop business must be strong. Whitbread has indicated that it has no plans to unload Costa – but it admits that could happen.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Suggested Topics
News
The guide, since withdrawn, used illustrations and text to help people understand the court process (Getty)
newsMinistry of Justice gets law 'terribly wrong' in its guide to courts
News
Bobbi Kristina Brown with her mother Whitney Houston in 2011
people
News
Starting the day with a three-egg omelette could make people more charitable, according to new research
scienceFeed someone a big omelette, and they may give twice as much, thanks to a compound in the eggs
News
Top Gun actor Val Kilmer lost his small claims court battle in Van Nuys with the landlord of his Malibu mansion to get back his deposit after wallpapering over the kitchen cabinets
people
PROMOTED VIDEO
News
The actress Geraldine McEwan was perhaps best known for playing Agatha Christie's detective, Miss Marple (Rex)
peopleShe won a Bafta in 1991 for her role in Oranges Are Not The Only Fruit
News
newsPatrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad
News
Robert Fraser, aka Groovy Bob
peopleA new show honours Robert Fraser, one of the era's forgotten players
Life and Style
Torsten Sherwood's Noook is a simple construction toy for creating mini-architecture
tech
Sport
David Silva celebrates with Sergio Aguero after equalising against Chelsea
footballChelsea 1 Manchester City 1
News
i100
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Software Development Manager

    £40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

    Ashdown Group: Product Manager - (Product Marketing, Financial Services)

    £30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

    Recruitment Genius: Compliance Assistant

    £13000 per annum: Recruitment Genius: This Pension Specialist was established ...

    Ashdown Group: Market Research Executive

    £23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

    Day In a Page

    As in 1942, Germany must show restraint over Greece

    As in 1942, Germany must show restraint over Greece

    Mussolini tried to warn his ally of the danger of bringing the country to its knees. So should we, says Patrick Cockburn
    Britain's widening poverty gap should be causing outrage at the start of the election campaign

    The short stroll that should be our walk of shame

    Courting the global elite has failed to benefit Britain, as the vast disparity in wealth on display in the capital shows
    Homeless Veterans appeal: The rise of the working poor: when having a job cannot prevent poverty

    Homeless Veterans appeal

    The rise of the working poor: when having a job cannot prevent poverty
    Prince Charles the saviour of the nation? A new book highlights concerns about how political he will be when he eventually becomes king

    Prince Charles the saviour of the nation?

    A new book highlights concerns about how political he will be when he eventually becomes king
    How books can defeat Isis: Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad

    How books can defeat Isis

    Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad
    Judith Hackitt: The myths of elf 'n' safety

    Judith Hackitt: The myths of elf 'n' safety

    She may be in charge of minimising our risks of injury, but the chair of the Health and Safety Executive still wants children to be able to hurt themselves
    The open loathing between Barack Obama and Benjamin Netanyahu just got worse

    The open loathing between Obama and Netanyahu just got worse

    The Israeli PM's relationship with the Obama has always been chilly, but going over the President's head on Iran will do him no favours, says Rupert Cornwell
    French chefs get 'le huff' as nation slips down global cuisine rankings

    French chefs get 'le huff' as nation slips down global cuisine rankings

    Fury at British best restaurants survey sees French magazine produce a rival list
    Star choreographer Matthew Bourne gives young carers a chance to perform at Sadler's Wells

    Young carers to make dance debut

    What happened when superstar choreographer Matthew Bourne encouraged 27 teenage carers to think about themselves for once?
    Design Council's 70th anniversary: Four of the most intriguing prototypes from Ones to Watch

    Design Council's 70th anniversary

    Four of the most intriguing prototypes from Ones to Watch
    Dame Harriet Walter: The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment

    Dame Harriet Walter interview

    The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment
    Art should not be a slave to the ideas driving it

    Art should not be a slave to the ideas driving it

    Critics of Tom Stoppard's new play seem to agree that cerebral can never trump character, says DJ Taylor
    Bill Granger recipes: Our chef's winter salads will make you feel energised through February

    Bill Granger's winter salads

    Salads aren't just a bit on the side, says our chef - their crunch, colour and natural goodness are perfect for a midwinter pick-me-up
    England vs Wales: Cool head George Ford ready to put out dragon fire

    George Ford: Cool head ready to put out dragon fire

    No 10’s calmness under pressure will be key for England in Cardiff
    Michael Calvin: Time for Old Firm to put aside bigotry and forge new links

    Michael Calvin's Last Word

    Time for Old Firm to put aside bigotry and forge new links