Whitbread shows the way

The Investment Column

These were good figures from Whitbread, but so they should have been against an increasingly benign consumer background. They looked doubly good because there were improvements across the board and no banana skins.

At the top end of expectations, the results, showing a rise in underlying pre-tax profits from pounds 155.7m to pounds 177.5m, helped the shares rise 5.5p yesterday to close at 746p, within striking distance of their all-time high and more than twice the level they traded at four years ago.

After a 15 per cent rise in earnings per share to 27.1p, the interim dividend rose 9 per cent to 6.25p.

Whitbread is proving itself to be a really intelligent company, way ahead of its peers in the way it has thought strategically about where the British leisure pound is going and how it can grab an increasingly fatter slice of that growing market. Perhaps it is a reflection of his time at Unilever dreaming up Captain Birdseye, but Peter Jarvis appears to have a better grasp than most of the significance of demographic shifts and changes in the public's aspirations.

Whenever the company has bought itself into new niches of the leisure market, whether fitness through David Lloyd or semi-sophisticated urban eating out through Pelican, it has been able to defend the move (and its cost) with empirical evidence of the market forces that will make the deal work. Whitbread may occasionally be guilty of paying over the odds to secure a position, but it has always been right to take it.

As a result, Whitbread has become Britain's dominant retailer in drinks, eating out and accommodation, with an unrivalled portfolio of brands from Marriott and Travel Inn to Beefeater and Brewers Fayre, from Thresher and Pizza Hut to Cafe Rouge and Costa Coffee. Brewing now accounts for a small proportion of profits, but even in that traditional core Whitbread has sensibly focused on the growing take-home market, where its strong Stella Artois and Heineken brands are increasingly successful.

On the basis of forecast profits of pounds 320m to next February and pounds 360m the following year, the shares trade on a prospective price/earnings ratio of 15 falling to 13.5. That is not demanding for a company so well placed to benefit from rising leisure spending. A good long-term hold.