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 VouchedFor.co.uk

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

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

    Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

    £50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

    Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

    £13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

    Ashdown Group: Training Programme Manager - City, London

    £40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

    Day In a Page

    Where the spooks get their coffee fix: The busiest Starbucks in the US is also the most secretive

    The secret CIA Starbucks

    The coffee shop is deep inside the agency's forested Virginia compound
    Revealed: How the Establishment closed ranks over fallout from Loch Ness Monster 'sighting'

    How the Establishment closed ranks over fallout from Nessie 'sighting'

    The Natural History Museum's chief scientist was dismissed for declaring he had found the monster
    One million Britons using food banks, according to Trussell Trust

    One million Britons using food banks

    Huge surge in number of families dependent on emergency food aid
    Excavation at Italian cafe to fix rising damp unearths 2,500 years of history in 3,000 amazing objects

    2,500 years of history in 3,000 amazing objects

    Excavation at Italian cafe to fix rising damp unearths trove
    The Hubble Space Telescope's amazing journey, 25 years on

    The Hubble Space Telescope's amazing journey 25 years on

    The space telescope was seen as a costly flop on its first release
    Did Conservative peer Lord Ashcroft quit the House of Lords to become a non-dom?

    Did Lord Ashcroft quit the House of Lords to become a non-dom?

    A document seen by The Independent shows that a week after he resigned from the Lords he sold 350,000 shares in an American company - netting him $11.2m
    Apple's ethnic emojis are being used to make racist comments on social media

    Ethnic emojis used in racist comments

    They were intended to promote harmony, but have achieved the opposite
    Sir Kenneth Branagh interview: 'My bones are in the theatre'

    Sir Kenneth Branagh: 'My bones are in the theatre'

    The actor-turned-director’s new company will stage five plays from October – including works by Shakespeare and John Osborne
    The sloth is now the face (and furry body) of three big advertising campaigns

    The sloth is the face of three ad campaigns

    Priya Elan discovers why slow and sleepy wins the race for brands in need of a new image
    How to run a restaurant: As two newbies discovered, there's more to it than good food

    How to run a restaurant

    As two newbies discovered, there's more to it than good food
    Record Store Day: Remembering an era when buying and selling discs were labours of love

    Record Store Day: The vinyl countdown

    For Lois Pryce, working in a record shop was a dream job - until the bean counters ruined it
    Usher, Mary J Blige and Will.i.am to give free concert as part of the Global Poverty Project

    Mary J Blige and Will.i.am to give free concert

    The concert in Washington is part of the Global Citizen project, which aims to encourage young people to donate to charity
    10 best tote bags

    Accessorise with a stylish shopper this spring: 10 best tote bags

    We find carriers with room for all your essentials (and a bit more)
    Paul Scholes column: I hear Manchester City are closing on Pep Guardiola for next summer – but I'd also love to see Jürgen Klopp managing in England

    Paul Scholes column

    I hear Manchester City are closing on Pep Guardiola for next summer – but I'd also love to see Jürgen Klopp managing in England
    Jessica Ennis-Hill: 'I just want to give it my best shot'

    Jessica Ennis-Hill: 'I just want to give it my best shot'

    The heptathlete has gone from the toast of the nation to being a sleep-deprived mum - but she’s ready to compete again. She just doesn't know how well she'll do...