Derek Pain: Whitbread's plans for Costa Coffee make sale unlikely

No Pain, No Gain

The performance of Whitbread shares has been quite astonishing. Against a background of a reasonable but far-from-exciting trading statement, the price has hit a year's high and come close to topping the all-time peak of a little over 1,900p. As I write this the shares are around 1,850p against a 12-month low of 1,409p.

What is going on? As far as I can gather there are two stories circulating in the stock market. One, of course, involves a takeover strike for the budget hotels, coffee shops and pubs/restaurants group. The other relates to the booming Costa Coffee division. It is rumoured that the group is preparing to float (or perhaps even sell) the coffee shop business that has grown rapidly under John Derkach and now embraces more than 2,200 outlets.

The bid is expected to come from across the Atlantic. It is said a US company has completed its research and is near to launching a seemingly irresistible offer. Should a bid materialise – the alleged price is around 2,400p a share – it would capitalise the former brewer at more than £4.2bn. Its current valuation is nearer £3.3bn.

The Costa Coffee story was originally that a flotation was on the cards. But the sudden resignation of Mr Derkach as managing director has clouded the issue. He is taking over at Tragus, the unquoted, heavily indebted restaurant group that takes in the Café Rouge chain, itself once owned by Whitbread. His successor at the coffee counter is Chris Rogers, the Whitbread finance director. The group is now looking for a new head bean counter.

My guess is that a Costa Coffee sale is unlikely but a flotation, possibly with Whitbread shareholders getting special treatment, could be on the agenda, although the group has denied it has any present intention of getting out. The plan is to expand the business. Already Britain's top coffee shop chain, there are aggressive ambitions to extend the number of outlets worldwide to 3,500 by 2016.

Clearly the share strength is intriguing many investors. I feel that something rather more suggestive than current trading is behind the performance.

The group has experienced a profitable transformation in the past decade or so. Once a family controlled "big six" brewer, it had an extensive pub chain and moved, like many of its then rivals, into upmarket hotels, off-licences, soft drinks, wines and spirits as well as restaurants. The pub/restaurant chain is the main surviving element of the old brewing business. Yet Whitbread has continued as a quoted company, unlike all the other once-powerful brewers.

The No Pain, No Gain portfolio alighted on the shares nearly four years ago at 1,105p. It has been something of a bumpy ride, with the price at one time falling to 750p. But in the past few years, as the nation's economy deteriorated, the group's basic ability to resist recessionary influences has come to the rescue.

Booker, the cash and carry chain that remains the star of the portfolio, has produced final quarter figures that should keep shareholders happy although the immediate stock market reaction left much to be desired. In what is normally a low-key 12-week period sales rose 4.8 per cent. In the 52-week year (this year the group enjoys an extra week that should add £1m to operating profits) they were 7.3 per cent higher at £3.9bn.

The group, which now has £63m in the bank against £27m a year ago, intends to announce its results next month. The shares, strong recently, fell 3.25p on the trading update to 81.25p.

Two other constituents have contributed to the City's news flow. Northern Petroleum has, with its much bigger partners, started the search for oil in an area adjacent to the Zaedyus oil discovery off South America. It's a "low cost investment" for Northern, which has a 1.25 per cent interest in the venture.

TEG, the environmental composting group where the possibility of a takeover remains on the agenda, says it has generated electricity at its 50 per cent owned Glenfarg, Perthshire, plant and arranged a new contract with the recycling group Viridor for waste treatment.

Following a couple of approaches, TEG began a strategic review that could lead to a bid. Because of this process, it has postponed publishing its year's figures.

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

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Office Manager / Financial Services

    £30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...

    Jemma Gent: Year End Accountant

    £250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...

    Jemma Gent: Management Accountant

    £230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...

    Beverley James: Accounts Payable

    £22,000 - £23,000: Beverley James: Are you looking for the opportunity to work...

    Day In a Page

    HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

    Scientists hail daily pill that protects against HIV infection

    Breakthrough in battle against global scourge – but will the NHS pay for it?
    How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

    Time to play God

    Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
    MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

    MacGyver returns, but with a difference

    Handyman hero of classic 1980s TV series to be recast as a woman
    Tunnel renaissance: Why cities are hiding roads down in the ground

    Tunnel renaissance

    Why cities are hiding roads underground
    'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

    Boys to men

    The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
    Crufts 2015: Should foreign dogs be allowed to compete?

    Crufts 2015

    Should foreign dogs be allowed to compete?
    10 best projectors

    How to make your home cinema more cinematic: 10 best projectors

    Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
    Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

    Manchester City vs Barcelona player ratings

    Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
    Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

    Monaco: the making of Wenger

    Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
    Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

    Chris Gayle: The West Indies' enigma

    Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
    In Ukraine a dark world of hybrid warfare and murky loyalties prevails

    In Ukraine a dark world of hybrid warfare

    This war in the shadows has been going on since the fall of Mr Yanukovych
    'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

    Homage or plagiarism?

    'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
    Broadchurch ends as damp squib not even David Tennant can revive

    A damp squib not even David Tennant can revive

    Broadchurch, Series 2 finale, review
    A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

    Inside the mansion of Germany's 'Bishop of Bling'

    A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower