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Barclays ups Whitbread to ‘overweight’, thinks Costa Coffee disposal underpins Premier Inns equity story

Barclays’ analysts said the significant value unlocked by Whitbread’s move to sell its Costa Coffee chain for £3.9bn to Cola-Cola gives the UK firm “interesting optionality”
Costa Coffee cup
The bank also raised its target price for the FTSE 100-listed firm to 5,550p, up from 4,470p previously, offering 20% upside potential

Barclays has upgraded its rating for Whitbread PLC (LON:WTB) to ‘overweight’ from ‘neutral’ as it thinks the leisure firm’s sale of Costa Coffee business underpins the rump Premier Inns equity story.

The bank also raised its target price for the FTSE 100-listed firm to 5,550p, up from 4,470p previously, offering 20% upside potential with the shares currently changing hands at 4,642p each, up 0.06% on Thursday’s close.

READ: Whitbread shares froth higher as it agrees to sell Costa coffee to Coca-Cola for £3.9bn

In a note to clients, Barclays’ analysts said the significant value unlocked by Whitbread’s move to sell its Costa Coffee chain for £3.9bn to Cola-Cola Inc (NYSE:KO) gives the UK firm “interesting optionality”.

They added: ”We see Premier Inn as a strong format with potential to become a structural winner and to further improve execution with no Costa distraction.”

Whitbread bought Costa for £19mln in 1995 when the business had just 39 outlets. It is now the UK's largest coffee chain with more than 2,400 UK coffee shops and 1,400 outlets in 31 overseas markets.

The group said it plans to return a “significant majority” of proceeds from the disposal to shareholders.

The deal representing a multiple of 16.4x Costa’s fiscal year 2019 earnings (EBITDA).

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