Whitbread Plc Ordinary 76 122/153p Shares (WTB)

Company overview

Whitbread’s core activities are the operation of budget hotels, pub restaurants and coffee shops, mainly across the UK. Brands names include Premier Travel Inns, Brewers Fayre, Beefeater and Costa Coffee.

HL Comment (28 April 2008)

Whitbread, once a name famous for beer, has since the year 2001 been free of its brewing business as the group decided to concentrate on what had become known as hospitality. This has encompassed such businesses as budget hotels (Premier Inns), restaurants (Beefeater & Brewers Fayre), coffee shops (Costa) and David Lloyd health clubs, although the latter has now been sold. The company now sees itself as the UK’s leading provider of hospitality.

Recent full year results saw the company continuing to make progress. Profit before tax and exceptional items for continuing operations rose by 26.3pc to £210.3m (2006/7: £166.5m), whilst total revenues adjusted for the reduced company size were up 11.3pc to £1,18 billion (2006/7: £1,06 billion). Like-for-like sales for continuing group operations were up 5.7pc. The strong performance was driven by a record year at Premier Inns, where 3,400 rooms were added and sales increased by 15.1pc. Whitbread management also noted that its pub/restaurants chain (Beefeater and Brewers Fayre) had delivered significant improvements, with profit per pub/ restaurant up 40pc. Expansion of the company's Costa Coffee chain also accelerated, with 1,000 stores now established worldwide, as of March 2008, and sales rising by 23.5pc. Furthermore, management laid down new expansion targets, with Premier Inns to be increased by 50pc to 55,000 rooms and Costa doubled to 2,000 stores over the next five years.

Acting for negative investor concerns, the financial health of consumers is being questioned as the effects of an unfolding credit crisis continue to be witnessed. On the positive, internal efficiencies are still being achieved and the group may well be benefiting from some form of ‘trading down’ as consumers look to reduce costs. Furthermore, the recent restructuring of the group looks to have improved group finances - year end net debt of £425.8m versus £898.6m for 2006/7 – at what looks to be an appropriate time. On balance, market consensus opinion is currently positive in tone.

All yield figures are variable and not guaranteed.

Fundamental Data

* Prior to 3rd March 2005, figures were stated under UK Generally Accepted Accounting Principles (GAAP). Recent figures stated under International Financial Reporting Standards (IFRS).