Barclays upgrades Whitbread as risks skewed to upside

Barclays has upgraded its stance on Whitbread to ‘overweight’ from ‘equalweight’ and bumped up the price target to 5,200p from 5,000p after the Premier Inn owner completed the sale of its Costa coffee chain to Coca-Cola a day earlier.

The bank said risks now looked skewed to the upside as it hailed Whitbread its preferred hotel pick.

"Clearly there are significant risks surrounding the macro outlook and consequently the group’s earnings profile,"it said, as it cut its underlying forecasts by around 4% on lower revenue per available room to reflect this. "However we believe the risk/reward is now skewed to the upside."

Barclays said the shares already reflect fears around the UK macro outlook while applying zero value to the German roll-out and any possible upside from further re-leveraging.

"We see further support from 1)asset backing, 2) activist presence, 3) shareholder returns with circa 35% of the market cap in cash," it said.

Barclays noted the company’s capital markets day on 13 February and said it expects this to be a positive catalyst as Whitbread is likely to announce new cost-cutting targets and a £2.5bn tender offer, and update the market on its German plans. It also expects management to outline a medium-term leverage target.

"Including the targeted savings this year and next, the group will have delivered £200m cost cuts over the past four years (with positive surprises on the magnitude of this programme along the way).

"With the appointment of key personnel in areas such as procurement, we believe the group has the potential to go further and deliver more savings over coming years, thereby mitigating the negative impact of a softer RevPAR environment."

At 1340 GMT, the shares were up 1.8% to 4,669p.