No Pain, No Gain: May the venerable Whitbread rise to the occasion

Time to add a little ballast to the No Pain, No Gain portfolio. Since brewer Scottish & Newcastle's enforced departure, it has lacked the heavyweight presence of a Footsie constituent. Indeed, it has only two fully listed shares – Mears and Rentokil Initial.

The obvious replacement would be another major brewer. But Scottish was the last of the breed. Incessant takeover activity has left Britain without a top player. True, Diageo owns Guinness, which is probably one of the best-known beer brands in the world. But the Johnnie Walker to Gordon's behemoth is mainly a wine and spirit purveyor. I would never be surprised if Guinness was floated as a separate company or sold if a tempting offer arrived.

Britain's two biggest brewers are now Greene King and Marston's. But they are not big enough for Footsie consideration. Although both seem keen to re-create the roles once played by the likes of the old Bass and, of course, Scottish, they do not yet enjoy national spreads. Even so, the shares of these so-called super-regionals are intriguing. I am tempted by Marston's mouth-watering yield. Still, for this round I should, for balance, buy a Footsie stock.

The portfolio has enjoyed cheerful rewards in the past from big brewers. Allied Domecq and Scottish produced rich pickings when they fell victims to takeover bids. And Bass, as Six Continents, produced a short-term gain before it was split into two – InterContinental Hotels and Mitchells & Butlers. Despite the more sobering climate, I remain a fan of the booze business.

My hope is that Whitbread, once a big brewer, will be a worthy successor to my brewing heritage. Around the turn of the century, it ended more than 250 years of beer production to concentrate on retailing. Then it unloaded 3,000 pubs. It has since dabbled in gyms, up-market hotels and various restaurant brands but is now largely concentrating on budget hotels, pub restaurants and the Costa Coffee chain – a combination that may not be recession-proof but is not too far away.

The last trading update was relatively encouraging with like-for-like sales up 7.1 per cent in the first 13 weeks of the current year. Premier Inn, its budget hotels chain, is clearly attracting trade from more traditional hotels, as its more affordable prices entice businessmen and holidaymakers. Its coffee shops are low-ticket outlets, and the Beefeater and Brewers Fayre pub restaurants, probably the most vulnerable of the three, do not eat up cash like some establishments do.

In its last financial year, Whitbread produced pre-tax profits of £135m against a £338m inflated by asset sales. Adjusted profits were £210m (£166.5m). Interim figures should appear in October.

In recent times it has been active in buying back its own shares. It has often paid top whack. The shares almost touched £20 last year; as I write they are 1,105p. Perhaps it should have kept its cash in the bank. Nevertheless, its balance sheet is strong, with gearing at 33 per cent, a comfortable figure in these cash-strapped days. Unless it indulges in a major acquisition, there is little danger of Whitbread having to endure the humiliation experienced by HBoS, which purchased its own shares at £10, only to launch a cash call at 275p.

I realise Whitbread could be regarded as a surprise choice. The credit crunch is, of course, a worry, but it is a solid, well-run group with a progressive dividend policy. On present form it is selling at around 13 times prospective earnings.

With the shares at 1,105p, many of the worries that are tormenting the stock market are already in the price. The dividend yield, around three per cent, is, compared with some blue chips, on the low side. For example, BT, unlikely I think to cut its dividend, yields about eight per cent – the sort of return once confined to shares with their future behind them. BT shares, if light years away from their dot.com peak, are certainly not in that category.

The arrival of Whitbread lifts the portfolio's strength to 13. I am a superstitious old soul and I am not happy resting on such an unlucky number. After all, negotiating the stock market without encountering too many disasters requires an element of luck. Consequently, another recruit should arrive shortly.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Suggested Topics
Arts and Entertainment
Joe Cocker performing on the Stravinski hall stage during the Montreux Jazz Festival, in Montreux, Switzerland in 2002
musicHe 'turned my song into an anthem', says former Beatle
News
Clarke Carlisle
sport
Sport
footballStoke City vs Chelsea match report
Arts and Entertainment
theatreThe US stars who've taken to UK panto, from Hasselhoff to Hall
PROMOTED VIDEO
Life and Style
Approaching sale shopping in a smart way means that you’ll get the most out of your money
life + styleSales shopping tips and tricks from the experts
News
newsIt was due to be auctioned off for charity
News
Coca-Cola has become one of the largest companies in the world to push staff towards switching off their voicemails, in a move intended to streamline operations and boost productivity
peopleCoca-Cola staff urged to switch it off to boost productivity
Environment
Sir David Attenborough
environment... as well as a plant and a spider
Voices
'That's the legal bit done. Now on to the ceremony!'
voicesThe fight for marriage equality isn't over yet, says Siobhan Fenton
Finacial products from our partners
Property search
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

    The Jenrick Group: Night Shift Operations Manager

    £43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...

    SThree: Trainee Recruitment Consultant - LONDON

    £20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

    SThree: Graduate Recruitment Consultant

    £20000 - £25000 per annum + OTE £35000: SThree: SThree are a global FTSE 250 b...

    Day In a Page

    Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

    'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

    Yazidi girls killing themselves to escape rape and imprisonment
    Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

    Ed Balls interview

    'If I think about the deficit when I'm playing the piano, it all goes wrong'
    He's behind you, dude!

    US stars in UK panto

    From David Hasselhoff to Jerry Hall
    Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

    Grace Dent's Christmas Quiz

    What are you – a festive curmudgeon or top of the tree?
    Nasa planning to build cloud cities in airships above Venus

    Nasa planning to build cloud cities in airships above Venus

    Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
    Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

    Clocks, rifles, swords, frogmen’s uniforms

    Surrounded by high-rise flats is a little house filled with Lebanon’s history
    Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

    Four months after the bombardment, Gaza’s wounds are yet to heal

    Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
    Gastric surgery: Is it really the answer to the UK's obesity epidemic?

    Is gastric surgery really the answer to the UK's obesity epidemic?

    Critics argue that it’s crazy to operate on healthy people just to stop them eating
    Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

    Homeless Veterans appeal: Christmas charity auction

    Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
    Pantomime rings the changes to welcome autistic theatre-goers

    Autism-friendly theatre

    Pantomime leads the pack in quest to welcome all
    The week Hollywood got scared and had to grow up a bit

    The week Hollywood got scared and had to grow up a bit

    Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
    From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

    Panto dames: before and after

    From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
    Thirties murder mystery novel is surprise runaway Christmas hit

    Thirties murder mystery novel is surprise runaway Christmas hit

    Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
    Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

    Anne-Marie Huby: 'Charities deserve the best'

    Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
    The botanist who hunts for giant trees at Kew Gardens

    The man who hunts giants

    A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there