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Things are heating up at Whitbread. The company has two activist investors on its tail – Sachem Head and Elliott – which is causing analysts to wonder whether Whitbread boss Alison Brittain will come under pressure to break up the business, including potentially hiving off Costa Coffee and Premier Inn, two big UK brands. Whitbread shares have been sagging badly in recent years, dropping from £55 to just over £33 before the recent stake building.

Whitebread saw three years of double digit earnings increases in 2013-14, and now 2015 profits are seen rising at a mid single digit rate. Part of this drop in earnings comes from increased competition in the UK coffee market, worries about the future of the UK economy, and the law of large numbers applying itself to the growth in Premier Inn’s estate.

Stock broker AJ Bell pointed out last week that October’s interims from Whitbread showed flat profits at Costa Coffee as well as a slow down in the key hotel industry metric of revenue per available room.

“To keep the activists at bay, Whitbread will need to capitalise upon the growth potential of its moves into the German hotel and Chinese coffee markets and deliver on its still somewhat nebulous £150 million efficiency plan while proving that Costa can cope with a competitive UK coffee market and any near-term slowdown in UK activity will not hobble Premier Inn’s long-term earnings power,” says AJ Bell investment director Russ Mould.

Analysts are looking for sales of £3.3 billion from Whitbread vs the £3.1 billion it achieved a year ago, hopefully increasing to £3.6 billion in the year to February 2019. This sounds like a tall order to be honest. The market will also want to see pre-tax profits of £582 million increasing to £618 million, with adjusted earnings per share of 255.5 pence.

 

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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