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
Arts and Entertainment
Books should be for everyone, says Els, 8. Publisher Scholastic now agrees
booksAn eight-year-old saw a pirate book was ‘for boys’ and took on the publishers
Life and Style
Mary Beard received abuse after speaking positively on 'Question Time' about immigrant workers: 'When people say ridiculous, untrue and hurtful things, then I think you should call them out'
tech
Life and Style
Most mail-order brides are thought to come from Thailand, the Philippines and Romania
life
News
i100
Life and Style
tech
Voices
Margaret Thatcher, with her director of publicity Sir Gordon Reece, who helped her and the Tory Party to victory in 1979
voicesThe subject is being celebrated by the V&A museum, triggering some happy memories for former PR man DJ Taylor
Finacial products from our partners
Property search
  • Get to the point
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

    Ashdown Group: Business Analyst - Financial Services - City, London

    £50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...

    SThree: Trainee Recruitment Consultant

    £18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...

    Recruitment Genius: Administrator - IFA Based

    £22000 - £24000 per annum: Recruitment Genius: This is an opportunity to join ...

    Day In a Page

    General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

    Chuka Umunna: A virus of racism runs through Ukip

    The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
    Yemen crisis: This exotic war will soon become Europe's problem

    Yemen's exotic war will soon affect Europe

    Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
    Marginal Streets project aims to document voters in the run-up to the General Election

    Marginal Streets project documents voters

    Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
    Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

    The real-life kingdom of Westeros

    Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
    How to survive a social-media mauling, by the tough women of Twitter

    How to survive a Twitter mauling

    Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
    Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

    At dawn, the young remember the young

    A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

    Follow the money as never before

    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
    Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

    Samuel West interview

    The actor and director on austerity, unionisation, and not mentioning his famous parents
    General Election 2015: Imagine if the leading political parties were fashion labels

    Imagine if the leading political parties were fashion labels

    Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence
    Public relations as 'art'? Surely not

    Confessions of a former PR man

    The 'art' of public relations is being celebrated by the V&A museum, triggering some happy memories for DJ Taylor
    Bill Granger recipes: Our chef succumbs to his sugar cravings with super-luxurious sweet treats

    Bill Granger's luxurious sweet treats

    Our chef loves to stop for 30 minutes to catch up on the day's gossip, while nibbling on something sweet
    London Marathon 2015: Paula Radcliffe and the mother of all goodbyes

    The mother of all goodbyes

    Paula Radcliffe's farewell to the London Marathon will be a family affair
    Everton vs Manchester United: Steven Naismith demands 'better' if Toffees are to upset the odds against United

    Steven Naismith: 'We know we must do better'

    The Everton forward explains the reasons behind club's decline this season
    Arsenal vs Chelsea: Praise to Arsene Wenger for having the courage of his convictions

    Michael Calvin's Last Word

    Praise to Wenger for having the courage of his convictions