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Slower sales at Costa hit Whitbread shares

Premier Inn at Lomondgate


Whitbread shares continued their downward slide after growth in its hotels was offset by lower profits in its Costa Coffee chain.

Pre-tax profits at Costa slid 10% to £59m for the half-year, with the UK’s biggest coffee chain saying it was partly a result of more expensive coffee imports.

Group profits rose 20% to £316m thanks to growth from the Premier Inn hotel business.

Whitbread boss Alison Brittain said consumer confidence had “softened” slightly on the high street.

Whitbread has opened 2,000 Premier Inn rooms and 108 more Costa stores over the six month period.

Russ Mould, investment director at AJ Bell, comments: “Today’s initial share price slide leaves Whitbread down by some 30% from its spring 2015 peaks to again remind investors that the best portfolio protection comes from paying a lowly valuation.

“In April 2015, when the shares touched £54.40, the stock was trading on around 23 times forward earnings (based on a consensus earnings per share estimate of 232p for the year to February 2016). 

“At £37.72, Whitbread has since de-rated to 14.6 times earnings (based on a consensus earnings per share estimate of 257p for the year to February 2018) as concerns have grown over growth. 

“After three years of strong double-digit earnings increases in 2013, 2014 and 2015 profits are now seen rising at a mid-single digit clip going forward.

“This is partly due to increased competition in an increasingly saturated UK coffee market, concerns over the UK economy and the law of large numbers when it comes to the Premier Inn estate’s growth.”

 



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