Morgan Stanley has downgraded its rating for Whitbread PLC (LON:WTB) in the wake of the blue chip leisure group’s first half numbers on Tuesday on concerns over the UK consumer.
The US bank cut its stance on the FTSE 100-listed firm to ‘equal-weight’ from ‘overweight’ and reduced its target price for the stock to 4,500p from 4,700p.
Having dropped 5% yesterday, Whitbread shares were down another 0.9% to 3,719p in late morning trading on Wednesday.
READ: Whitbread shares fall as higher costs weigh and like-for-like sales growth slows at Costa
In a note to clients, Morgan Stanley’s analysts said that “despite attractive structural growth opportunities, strong cost control, and the shares trading well below our SOTP, LfL sales look set to remain weak, and this is investors' main focus for UK stocks given the economic uncertainties.”
They noted that there was plenty to like from Whitbread's results, which saw the company exceed first half expectations with pretax profit growth of 7% confirmation “its expansion plans are on track along with visibly high returns”.
But, they added: “With concerns over the UK economy and Brexit likely to linger for some time, and trading likely to remain dull (Costa faces a tough Q3 comp at +2.9%), which will be reported late January, just being ‘cheap’ or a ‘good company’ do not appear to be sufficient for outperformance.”
The analysts concluded: “We have no doubt that Whitbread's brands will emerge stronger than the competition, but until investors know how long this period of dull trading will last, we would not be surprised to see the ‘buyer's strike’ remaining.”