US Edition Whitbread
£15.02 -10p
Questor says Buy
Sales at its budget hotel chain Premier Inn were in decline early in 2009, along with the rest of the hotel sector, but by the end of last year Premier was growing again. Costa Coffee sales kept on climbing throughout the worst downturn in a generation and the value of Whitbread's shares rose 54pc last year.
Now, the company is using its profits to fund UK and overseas expansion, with a goal to increase the number of its hotel rooms by 30pc in the next three years. In this financial year, Whitbread will open about 2,800 rooms, up from 1,800 last year, Alan Parker, chief executive, said. Revenue per available room, a hotel industry measure of pricing and occupancy, is now back up to pre-recession peak levels, according to analysts at Morgan Stanley.
Whitbread carried out its own private-equity style makeover in the late 2000s, disposing of its David Lloyd gym division, TGI Friday restaurants, its stake in Pizza Hut in the UK and those Beefeater restaurants not attached to its hotels. That left a business focused on two brands, Premier Inn (and the pub restaurants located next to them) and Costa.
Now Whitbread is taking those brands abroad, with hotels in the Middle East and plans to open Premier Inn in India, and Costa in China, Russia and eastern Europe.
In the UK, the company is taking market share by attracting more holidaymakers and weekend travellers as well as business customers looking to cut costs. The company's hotels were 95pc full over the August bank holiday, usually a "down time" for the company, Mr Parker said.
Whitbread's sales rose 14pc in the first half, and like-for-like revenue increased 7.9pc. That was led by a 10.7pc rise in like-for-likes at Premier Inn and an 8.3pc climb at Costa.
The shares have certainly never returned to the dizzy heights of July 2007, when they reached £19.46 on speculation of a private equity takeover. Property-backed leveraged buyouts have been decidedly out of vogue since then, and perhaps without takeover rumours, the shares won't get back to that level. The shares also dipped after yesterday's numbers, as the company predicted slower sales growth in the second half of the year.
However, Whitbread shares are now trading at a price-to-earnings ratio of 14.2 times, and yielding 2.7pc. Morgan Stanley calls them "good value for a business with cyclical upside, strong growth prospects and an attractive market position". Buy.