Numis keeps Whitbread at 'hold' after full year results

Numis reiterated a 'hold' rating and target price of 4,000p for Whitbread on Tuesday, saying it expects "lack-lustre" earnings growth in the near term.

The owner of Costa and Premier Inn reported its full year results on Tuesday, revealing a 12% increase in total revenue to £2.91bn and an 11.9% gain in underlying profit before tax to £546.3m. Numis had forecast pre-tax profit of £548.7m.

The company’s Premier Inn brand saw total sales growth of 12.9% and like-for-like growth of 4.2%, while coffee chain Costa saw total sales improve 15.9% and UK like-for-likes grow 2.9%. The dividend was raised by 10% to 90.35p.

Chief executive Alison Brittain said Whitbread was planning to develop its network and brand strength amid rising competition, rapid technological advancements, changing cost structures and growing customer expectations.

Whitbread repeated its target to reach around 85,000 UK hotel rooms and £2.5bn system sales in Costa by 2020.

“Management acknowledges the need to invest across both brands in a number of common areas: teams, IT infrastructure, digital and productivity and efficiency,” said Numis analyst Wyn Ellis.

“We believe that this, in combination with a more competitive market environment, will result in relatively lack-lustre earnings growth in the near term.”

Numis kept its forecasts for full year 2017 pre-tax profit growth of 5.5% growth.

Whitbread said it has had a good start to the year with Premier Inn growing share in a flat market and is confident looking ahead.

Ellis concluded: “High enough for now, in our view: the ‘refreshed’ management team needs to prove itself in a changing world.”

Shares fell 0.03% to 3,866p at 1051 BST.