City broker Liberum has raised its price target for Whitbread PLC (LON:WTB) on valuation grounds, but hopes to see “more strategic clarity” from bosses at this afternoon’s investor event if it is to change its ‘hold’ recommendation.
There are a couple of unanswered questions hanging over the FTSE 100 group following the recent £3.9bn sale of its Costa coffee chain to Coca Cola Co. (NYSE:KO).
READ: Whitbread kicks off £500mln share buyback but cautious on outlook
Shorn of that business, some in the City think Whitbread, which also owns the Beefeater and Brewers Fayre pub-restaurants, is a prime takeover target, with Intercontinental Hotels Group and Marriott International both tipped as potential bidders.
To try to fend off any unwanted attention, bosses are expected to outline an ambitious growth strategy in Germany this afternoon.
The company is reportedly on the hunt for similar-sized acquisitions to that of Foremost Hospitality Group which it bought for £250mln last year, and Liberum is hoping chief executive Alison Brittain sketches in some of the detail later on.
Linked to that is how much Whitbread is setting aside from the Costa sale to return to investors.
A £500mln share buyback is already underway and some analysts reckon as much as £3bn could eventually be returned to shareholders in the form of a special dividend or a tender offer.
But Liberum reckons that figure will more likely be between £2-2.2bn, with the other £0.8bn or so being added to the board’s acquisition war chest.
“The stock is trading on an enterprise value/EBITDA multiple of 10.3x which seems fair given the challenging trading environment and recognising the asset underpinning,” read a note to clients.
“We remain ‘hold’ while we await more strategic clarity but increase target price to 4,800p from 4,450p based on a sum of the parts (SOTP) valuation.”
Whitbread shares were up 2.4% to 4,875p in late-morning trading on Wednesday.