MARKET REPORT: Whitbread wins backing for its budget hotel chain Premier Inn to push into Germany
One year ago the City broker Barclays Capital took a look at Whitbread and asked: ‘What if it sells its Costa Coffee business?’
Well, as we know, American drinks giant Coca-Cola swept in and paid what appeared to be a frothy £3.9billion for the chain.
Twelve months on and Barclays analysts are once again wondering out loud just how certain scenarios might play out for Whitbread.
The major driver could be the company’s attempt to replicate its UK success with the budget hotel chain Premier Inn in Germany. Barclays believes the operation could generate underlying earnings of £100million, worth up to 975p on the share price.
Barclays believes attempting to replicate the UK success of budget hotel chain Premier Inn in Germany could generate underlying earnings of £100m, worth up to 975p on the share price
Currently, Germany is factored into Whitbread’s market valuation at zero. Moving its stance to ‘overweight’ on Whitbread stock, Barclays also hiked its price target by 200p a share to 5200p.
Shares rose 2.1 per cent, or 95p, to 4680p.
A more fundamental re-rating may be triggered in the aftermath of the Whitbread capital markets day next month at which chief executive Alison Brittain is expected to pull the trigger on a £2.5billion share buyback.
A roller-coaster start to the new trading year ended on a high with the FTSE 100 up 144.76 points at 6837.42, with sentiment buoyed by strong US jobs data.
Stock Watch – Lightwave RF
Lightwave RF enjoyed a rare day in the sun, up 11.9 per cent, or 0.85p, to 8p, after a robust update to trading as it said it was one of the few online success stories on Black Friday.
It specialises in smart home devices to control your electrics, heating and power.
There is still some way to go for investors who bought a year ago at close to 20p.
Upbeat boss Jason Elliott said: ‘I’m confident we can maintain this momentum by focusing on channels and products that are performing well.’
However, the canaries in the coal mine remain poor. Manufacturing data from the US and China – the world’s two biggest economies –were released earlier this week, along with a shock profits warning from Apple.
Analysts believe all three events could be linked to the Sino-US trade stand-off and hint at the potentially recessionary impact it is having.
The only other real large-cap feature of note was the demise of Sainsbury’s ahead of the grocer’s Christmas trading statement next week, with broker HSBC cutting its recommendation to ‘reduce’ while hacking back its valuation by 70p to 230p a share.
Recovering from its session low, Sainsbury’s ended down 1.1 per cent, or 3p, at 260p.
The major movements of note were among the small-caps and one of the stand-outs was instrument retailer Gear4Music, which was playing absolutely the wrong tune.
While it had seen strong sales in the final four months of 2018, demand outstripped its UK capacity, hitting earnings. It lost half its value with stock falling 52.9 per cent, or 270p, to 240p.
Also on the decline was Circassia, which develops and sells inhalers for chronic lung disease.
Its shares dropped 9.1 per cent, or 5p, to 50p, after its trading update failed to pass muster.
While it has around £40million of cash in its coffers, it must find £95million in delayed payments for a product it has added to its medicine cabinet.
Having a much better start to the year was Anglo African Oil & Gas, which has soared 65 per cent in the last three trading days to 16.55p after reinstating production at a well in the Republic of Congo.
The ‘go figure’ moment came from Metals Exploration, which owns a gold project in the Philippines.
Its shares have more than doubled in the past week to 0.85p after the appointment of chief executive Darren Bowden.
He has a track record of mining success, so perhaps he can breathe new life into the company and the share price, which was 3.5p a year ago.
Looking ahead, two stories in the oil sector will be tracked closely. Cabot Energy, the driller hit by the woes afflicting the Canadian extraction sector, requires a cash injection.
And DNO’s hostile bid for Faroe Petroleum is likely to rumble on. It has 31 per cent of the oil explorer and commitments from a further 13 per cent of the investor base for a deal.