THE INVESTMENT COLUMN : Let's hear it for boring old Whitbread
Thursday 04 May 1995
All four divisions turned in higher numbers, the omens look good for the current year and the only problem facing the company would appear to be the growing perception that it is big, efficient but boring.
Its recent exit from the bidding for Courage nurtured suspicions that Whitbread was being overly cautious given the strength of a balance sheet that boasts £2.28bn of shareholders' funds and just £59.4m of borrowings.
Investors won't mind Whitbread remaining "boring", however, if it continues to apply its strong retailing skills to the task of extracting more organic growth from existing operations. The opportunities to do so are plentiful, from the beer company focusing on the growing premium brands sector through to Travel Inns, where the view for budget hotel accommodation is bright.
The Cassandras have had plenty to say about the beer market, but the returns can be very attractive: witness the profitability of premium beers if individual brands are afforded decent marketing support. Whitbread now sells three times the amount of Boddington's as when it acquired the brand in 1989.
The pub market, which has provided plenty of grist for the doom and gloom mill in recent years, can also be very rewarding through a combination of investment and retailing skills. Operating profits from Whitbread's leased pub business rose 2.5 per cent to £58.1m, while the managed house estate chalked up an 11 per cent advance to £114m.
Restaurants and leisure, which includes Beefeater pubs, Thresher's off- licences, Pizza Hut and Travel Inn, increased profits by 12.6 per cent to £66m, with Travel Inns and Beefeater starring.
On analysts' forecasts of £280m pre-tax this year, the shares, up 10p to 573p, trade on a p/e of 14 and yield 4.7 per cent assuming a dividend of 21.5p. That reflects worries about the pending Office of Fair Trade report on beer supply prices, which has kept Whitbread's shares under pressure for some time now. It is overly harsh and the shares look attractive.
Tate & Lyle looks East
Tate & Lyle has been making great strides recently to expand beyond the increasingly saturated markets of western Europe and North America. According to the sugar and sweeteners group's chairman, Sir Neil Shaw, the prime targets are countries with relatively young populations. Not surprisingly, these are the people likely to consume large amounts of soft drinks, chewing gum and other products that use Tate & Lyle's sugar products.
Last month, Tate & Lyle swam against the tide when it acquired a 49 per cent stake in Mexico's second largest sugar producer. In November it announced two deals in China. Vietnam, the Philippines and Thailand are on the hit list. Eastern Europe is also a target for the company, whith has been in Hungary for four years.
But for all this expansion, Europe and North America remain the driving force behind the group's growth. In the six months to March, group pre- tax profit rose from £130m to £152.8m. North America increased profits from £65.3m to £91.4m in spite of fears of over-capacity. Margins increased from 8.5 per cent to 11.7 per cent.
The Staley business in the US performed well. Though a three-year-old union dispute continues, the company has brought in a replacement workforce and reduced manpower from 750 to around 400.
Tate & Lyle has been waiting for eight years to gain Food and Drug Administration approval to market its Sucralose sweetener in the US. The product is already available in Canada, where it is neck and neck with Nutrasweet. Europe was more disappointing, with profits knocked by £12.6m in exceptional costs relating partly to job losses at a Belgian plant.
Henderson Crosthwaite is forecasting full-year profits of £305m. With the shares down 3p to 442p yesterday the shares are on an undemanding forward p/e of 10.5 times, which reflects reservations over capacity. The shares are still a good bet on the Third World developing an unhealthily sweet tooth.
Betting on the brothers
Gus Carter, the biggest betting shop operator in the north-east of England, confirms that when it comes to gambling the only winners tend to be the bookies.
Operating profits at the Sunderland-based group have risen steadily from £894,000 in 1992 to £1.54m in the year to last December, a compound rate of growth of 31 per cent a year, although thanks to the company's previous aversion to raising equity capital the cost of bank borrowings has taken a big chunk out of those returns. Pre-tax profits last year were £1.09m compared with £309,000 in 1992.
The company is now putting that right with a share placing through the broker Wise Speke that will value the company at £12.7m. Based on earnings per share of 6.3p last year, the 80p placing price represents a historic multiple of nearly 13. A notional dividend of 2.6p gives the shares, which start trading next Wednesday, a yield of 4.1 per cent.
John and Nick Trewhitt will be worth at least £3m apiece from their remaining holding after the float. The two brothers have built Gus Carter into a chain of 72 shops since taking over from their father 10 years ago. They plan to double that that number in two to three years.
Deregulation of the industry will add turnover this year. Profits of £1.4m for 1995 would cut the forward p/e to 12, which looks good value, but the market in the shares will be tight.
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