Proactive Investors - Run By Investors For Investors

Barclays Capital asks: What if Whitbread decides to sell Costa Coffee and its real estate?

The broker’s analysts said they estimate that under such a scenario Whitbread’s ‘sum of the parts’ value could be 4,700p in its upside case, and 5,700p in a blue sky scenario
Costa coffee cup
They said: “We see the most ‘obvious’ step, if any, as a sale of Costa rather than an ‘opco propco’ break-up of the hotels”

Analysts at Barclays Capital have raised their target price for Whitbread plc (LON:WTB) after posing the question what if the blue chip leisure giant decides to sell Costa Coffee and its hotels real estate?

In a note to clients, the broker’s analysts said they estimate that under such a scenario, Whitbread’s ‘sum of the parts’ value could be 4,700p in its upside case, and 5,700p in a blue sky scenario.

READ: Strong coffee needed by investors in Whitbread as shares tumble amid worries over costs and slowing UK sales at Costa Coffee

The analysts pointed out that following the arrival of an activist investor – Sachem Head - on Whitbread’s shareholder register in November, they have received numerous requests from investors asking the same questions and trying to understand the potential willingness of the board/key shareholders to engage in such discussions.

The BarCap analysts added that, in recent months, they have sensed a more open approach from Whitbread’s management regarding corporate activity, though they have felt this was more about the options on an 18-month-plus time horizon than anything imminent.

They added: “We see the most ‘obvious’ step, if any, as a sale of Costa rather than an ‘opco propco’ break-up of the hotels”.

Challenging trading conditions

Overall, the analysts said they are not positive enough to upgrade their rating for Whitbread from ‘equal-weight’ to ‘overweight’ due to current trading challenges, as well as the risks of a slowdown in business investment or consumer confidence.

They also added that, on their estimates, they only see around 7%-13% upside potential were the group to just sell Costa.

The analysts said they consider that an opco propco hotel scenario, which implies an additional 14-30% upside potential, as more challenging against the current backdrop and sense less desire from management to embark on this.

They increase their target price for Whitbread shares to 3,920p from 3,800p previously, however, to reflect a higher multiple for Costa given what they see as an increased likelihood of a sale.

January update a negative

The analysts also noted that Whitbread will issue a third quarter trading update on January 18 which they do not expect to be positive given weaker industry RevPAR (revenue per available room) trends for hotels and softer retail footfall data.

They forecast a 1% fall in Q3 RevPAR and a 0.5% decline in like for like sales at Costa, albeit with Whitbread’s restaurants stronger at 1.7% growth.

However, they think that, more encouragingly, Q4 trends have been better, and given that this will be Whitbread management’s first opportunity to comment on the potential separation of the group since Sachem Head’s stake disclosure, any open-minded commentary in this regard combined with reassurance on current hotel trading would, in their view,  likely mitigate any Q3 disappointment.

View full WTB profile View Profile

Whitbread plc Timeline

Related Articles

Amusement park
February 14 2018
Berenberg's analysts pointed out that accesso's end-to-end technology stack combined with its global footprint positions the group well in a market that is fragmented by product, geography and vertical
China leisure resort
December 18 2017
The new management team has a history of turning companies around
ZoomAway Travel Inc embracing blockchain, which is set to push out middle man in hospitality and act
January 11 2018
The firm plans to begin rolling out cryptocurrency payments into its white label and registration management system (RMS) clients

No investment advice

The Company is a publisher. You understand and agree that no content published on the Site constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable or advisable for any specific person. You further understand that none of the information providers or their affiliates will advise you personally concerning the nature, potential, advisability, value or suitability of any particular security, portfolio of securities, transaction, investment strategy, or other matter.

You understand that the Site may contain opinions from time to time with regard to securities mentioned in other products, including company related products, and that those opinions may be different from those obtained by using another product related to the Company. You understand and agree that contributors may write about securities in which they or their firms have a position, and that they may trade such securities for their own account. In cases where the position is held at the time of publication and such position is known to the Company, appropriate disclosure is made. However, you understand and agree that at the time of any transaction that you make, one or more contributors may have a position in the securities written about. You understand that price and other data is supplied by sources believed to be reliable, that the calculations herein are made using such data, and that neither such data nor such calculations are guaranteed by these sources, the Company, the information providers or any other person or entity, and may not be complete or accurate.

From time to time, reference may be made in our marketing materials to prior articles and opinions we have published. These references may be selective, may reference only a portion of an article or recommendation, and are likely not to be current. As markets change continuously, previously published information and data may not be current and should not be relied upon.

© Proactive Investors 2018

Proactive Investors Limited, trading as “Proactiveinvestors United Kingdom”, is Authorised and regulated by the Financial Conduct Authority.
Registered in England with Company Registration number 05639690. Group VAT registration number 872070825 FCA Registration number 559082. You can contact us here.

Market Indices, Commodities and Regulatory News Headlines copyright © Morningstar. Data delayed 15 minutes unless otherwise indicated. Terms of use