Derek Pain: Heavyweights could benefit by attracting new investors

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The Independent Online

Should Whitbread indulge in a little cosmetic surgery – of the corporate variety? I ask this as the shares of the leisure group approach a new peak of 4,000p, and such a heavyweight figure is thought to be something of an impediment when it comes to attracting new investors.

I am not suggesting that City institutions balk at such a high price, but many small players, investing modest amounts, can easily be deterred. Of course fancy priced shares, in strict investor parlance, are no different from an array of much lower valued shares totting up to about the same outlay. However, a shareholder gets many more shares for roughly the same cost and possibly a feeling of better value.

Whitbread, one of the stars of the No Pain, No Gain portfolio, could, in the long term, make itself even more attractive to many if it issued more shares through splitting its existing units, or handing around free shares. Initially, it would make no difference to its stock market capitalisation. For example, a ten for one bonus could bring the price down to, say, nearer 400p. Such action could prompt a degree of small selling as some shareholders decided to take advantage of the lower level and unload some of their stake, but any residue would soon be mopped up.

With its growing Premier Inn budget hotels chain and its booming Costa Coffee division, plus pubs/restaurants, Whitbread has much going for it. It seems well placed to benefit from the country's economic revival and peak profits will almost certainly be achieved in its current year. I am hopeful of even more progress in the next few years.

Mind you, Whitbread is not the only company to feature an upmarket share price. ASOS, the online clothing retailer that in the portfolio's early days I regarded as too expensive at 30p, has hit 7,000p on the junior AIM market. And among the top 100 shares Next is above 6,000p, Reckitt Benckiser is comfortably over 4,000p and there are quite a few stocks near Whitbread's territory.

Another method Whitbread could adopt is to hive off the Costa side. Apart from a stock market floatation or sale, with at least some of the proceeds going to shareholders, it could also hand Costa shares to its own investment army. There have been recurring rumours that the bubbling coffee pot could be poured, but the general feeling is that any possible deal is some years ahead.

Although moves to reduce prices often occur, there is also a tendency to "inflate" share values through consolidations. Findel, a portfolio constituent, adopted such a policy last year and as a result enjoyed a sudden price above 100p instead of a single digit. And taxpayer controlled Royal Bank of Scotland also indulged in such an exercise.

Lloyds Banking, a constituent since last summer, also has a significant taxpayer involvement. The shares have been firm on talk that the Government will again reduce its stake in the coming months, after the success of last year's exercise. There's also another, more intriguing, suggestion.

A growing body of opinion believes the bank, which ran into difficulty when former prime minister Gordon Brown said it should take over deeply troubled rival HBOS during the financial crisis, will in the not too distant future return to the dividend list.

The shares, once top FTSE performers, slumped to near 20p following the HBOS (Halifax/Bank of Scotland) acquisition. They have since clawed their way back to, at the time of writing, around the 84p mark. Obviously once the group is declaring dividends further progress should occur.

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