Whitbread plc (LON:WTB) has been downgraded to ‘Hold’ from ‘Buy’ by Shore Capital after a lower than expected cash return and a strong performance in the shares following the sale of Costa Coffee.
In a note to clients, analysts said plans by the FTSE 100 owner of Premier Inn to return around £2.5bn in cash to shareholders, a figure reached after it announced £2bn in additional share buybacks last week, were below their own expectations of around £3bn.
READ: Whitbread plans additional £2bn share buy-back as it spends proceeds from Costa Coffee sale
They added that following the sale of Costa to Coca-Cola Co (NYSE:KO) in August for £3.9bn, the shares had performed “relatively strongly”, having risen around 22% since then.
However, analysts said the stock was now within 7% of their fair value for the group’s retained hotels and restaurant operations, which include Premier Inn and the Brewers Fayre chain, and now the firm seemed “dependant” on its expansion plans in Germany for organic growth.
“Although we appreciate the long-term attractions of the German hotel market, it will likely be several years before the region generates a meaningful contribution to group earnings, whilst the risk profile of its capital allocation has been raised”.
Analysts also highlighted “little new news” which could help crystallise the value of the company’s property portfolio at a Capital Markets Day held last week.
In late-morning trading Thursday, Whitbread shares were down 0.5% at 4,913p.