Derek Pain: Whitbread's high share price is an unnecessary extra hurdle

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The Independent Online

Is it not time for the Whitbread leisure group to split its heavyweight shares? I realise such a move is largely cosmetic, but it would be appreciated by small shareholders who are often deterred by highly priced stocks.

Shares in the successful budget hotel to coffee shop chain have been above 4,000p for most of this year. Last week, after a positive trading update, there were high hopes the price would top 4,500p, but then a bearish circular – I think from the giant investment house UBS – appeared, knocking the shares to, as I write, 4,203p.

Some in the City are not enamoured of Whitbread. In recent times a number of "sell" missives have circulated but each time the shares, which admittedly are highly rated, have eventually shrugged off the downbeat comments.

Until the group trips up, I am happy the shares are constituents of the No Pain, No Gain portfolio. After all, they remain one of my star performers. I do, however, subscribe to the view that the shares are deep into Lennox Lewis territory. Years ago it was unfashionable to retain such shares and a share split or bonus issue would be used to slim them. These days there is much more tolerance of high-priced shares, which could be the lingering result of decimalisation. Still, I think Whitbread would do us all a favour by reducing its share price, which would, of course, make no difference to its performance, rating and value.

Perhaps a four-for-one deal or even eight-for-one (bringing the price down to below 500p) would solve such obesity.

The trading update, described by the analyst Wyn Ellis at stockbroker Numis as "very encouraging", said half-year sales were up 12.7 per cent. Premier Inn, with a chain of hi-tech, low-cost hotels in the pipeline, and Costa Coffee, still expanding, set the pace. Some analysts increased this year's expectations following the statement, with profits before interest and tax expected to emerge at more than £500m.

Another portfolio constituent reporting was Alkane Energy, the power group. It was not as upbeat as Whitbread but still held out hope of a significant improvement. Half-time pre-tax profits came out at £7.6m against £1.3m last time. The huge increase was due to the share exchange sale of its shale sites to Egdon Resources earlier this year.

The group's trading was hit by a number of factors, including the shutdown for a time of one of its highly productive coal mines. But the site is now contributing again and there is every indication that power production will be ramped up in the second half. Certainly activities should enjoy a considerable uplift. After all, National Grid has warned about the possibility of electricity shortages, and any deterioration in supplies would certainly benefit Alkane, which gets much of its revenue from converting gas in abandoned coal mines into power.

It already helps out the grid but most experts think it will have to play an increasing role this winter as some grid locations are temporarily out of action. And in future years there are grave dangers that demand could outstrip supply, with possible blackouts.

Finally to Stock Spirits, the last portfolio recruit. Last week it entertained research analysts and institutional investors at its Lubin plant in Poland. A little while before the visit, the investment house Schroders sold about two million shares. It has sold twice more since the plant tour and accompanying hospitality, reducing its holding to a rather more sober 10 per cent.

yourmoney@independent.co.uk

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