Whitbread climbs as activist hedge fund buys stake

Sachem Head Capital Management is a New York hedge fund set up by Scott Ferguson, a protégé of notorious Pershing Square Capital activist shareholder Bill Ackman.

A stock market regulatory announcement revealed the fund had bought 6.2m Whitbread shares, a 3.4% stake.

One of a new generation of activist funds, Sachem Head has been active in the UK corporate scene in 2017, with Whitbread seemingly the latest firm where it has spied an opportunity to press management to make changes to potentially increase shareholder returns.

Sachem has built up roughly $4bn in assets under management since being set up by Ferguson in 2013 after he had worked at Pershing Square since 2003.

In July Ferguson built up a stake in payments group Worldpay amid shareholder dissatisfaction over the price of its takeover and in October he took a stake in FTSE 100 group Shire and reportedly called for the drug-maker to sell some of its divisions.

The fund, which is known in the US for large public investments in CDK Global, Autodesk and Zoetis, still holds stakes in both UK Plcs.

Whitbread shares popped up 6% to 3,950p by 1515 GMT on Wednesday.

"Certainly it looks like change is afoot at Whitbread," analyst Neil Wilson at ETX Capital said to Sharecast.

He suggested the activist fund may look to either put pressure on management to spin off Costa, sell off the group's few pubs or possibly to release value from the property portfolio. "I think probably combination of last two is the most likely – release value from property portfolio and increase gearing makes sense.

Wilson said there is also a "strong rationale" to exit from the pubs sector given the current macro environment, but that with Costa's like-for-like sales having not been that impressive recently he would "not necessarily see spinning that off as the best bet".

Atif Latif, director of trading at Guardian Stockbrokers, said news of the stake building was being well received by the market as it "comes at an interesting time as we have seen evidence of management proving to the market that margins are improving".

"The relative underperformance is unwarranted and WTB have made positive steps to show that they are able to deliver on the potential they have. We are encouraged by ever improving RevPar data coupled with the roll out of the Costa network, where most feared was too quick."

He said Sachem's intentions are as yet unknown "but is there more value in a breakup or spin off of key assets...and with the soft environment for consumer demand the timing is interesting".