70p divvy tomorrow so expect an SP fall. Buy today if you want to get divvy!
The spikes recently seem to be due to the activist sharks circling and large volumes of buys. There are grounds for a future bidding war brewing up for Costa with several players wanting a piece of the cake. Also there's plenty of rumours of interest in Premier Inn so don't rule out a bid coming for that too.
I predict this SP is going to get very hot over the next few days/weeks/months. SP of £45 coming soon and I reckon could go as high as £60. Very good value right now. Please excuse all the puns.
It seems Blackrock has over 5% of the shares, which means that 15% of the shares are now owned by 3 entities that believe there should be major changes made in the company, namely the separation in some form or the other of Costa and Premier....
SP at highest since June 2016 and before that December 2015. WTB continuing to show strength - good momentum. The sell off of coffee is attracting buyers. Last week's results were also liked as the SP has improved 5% since then. 70p divvy coming next month. Onwards and upwards.
Number, you are right about product life cycles (though not everything follows the common pattern) & I thought Costa's strategy was spot on - grow the business in the UK, while the market for the product is growing, and when it becomes the cash cow, use that money to invest in another growth product (in this case China.) Having said that, Costa is still growing in the UK, so it has yet to hit the plateau.
I don't know what sample you are basing your observations on; but from a population of 2,422 stores can it be claimed to be a representative sample. I don't frequent them very often, but the last time I did the store looked fresh and so did the staff: keen and cheerful. It was a good experience.
Numberbiter - you were saying this 2 years ago with a price target of £30. We got nowhere near that and kept getting the divvies along the way. WTB's property value alone must have gone up 20% since then. The SP is up 20% in last 6 months. Costa's are still popping up everywhere as far as I can tell and the future expansion in China and Germany will offset any steady decline in UK. Of course UK growth will not be so big as it once was - I understand the product cycle. Yes the market has matured and is pretty saturated. Yes, the shops are looking a bit tired (there's a massive renovation programme under way). However, revenue growth of 6% is still decent as is an annual rise of 5.6% in the divvy. A nice 70p divvy coming next month BTW. The farming off of Costa will attract a bidding war and push WTB to a price I'm happy to sell at. At current SP there's no way I'm selling.
Whitbread have missed a glorious opportunity as their Board does not understand the concept of the product life cycle. A new product (as Costa once was) initially grows very fast though a high level of investment. Eventually, it reaches saturation point and becomes what is know as a 'cash cow', in that it generates a great deal of cash, with little investment needed. But growths comes to a standstill and eventually decline sets in. It is always a bell shaped curve. The strategy is to sell the business about two years before the product hits the top of the curve. The problem Whitbread has is that it is aiming to spin off Costa at a time when it is on a downward curve. To appreciate this, you only have to visit Costa shops; they have lacked investment for over a year and are tired, with little thought or innovation put into them. Anyone buying into Costa will see a steady decline. Investors should avoid the spin off like the plague.
It is obvious that Whitbread hotels is where the growth is going to come from. When Whitbread have got rid of Costa (taking out a lot of debt in the process) that will be the time to buy their shares.
Had Whitbread proposed this spin off (Costa) three years ago, they would have been spot on. Unfortunately they have missed the boat unless they can find an enterprise whose directors have never heard about the product life cycle.
Markets are fickle. When a shareholder known to be in favour of a break up, ups its stake, so making a break up more likely, markets get very excited and jump nicely. As soon as the break up is announced markets fall.
Concentrate of fundamentals and don't get swayed by emotional market moves.
Canaccord Genuity said: "Whitbread's in-line prelims are completely overshadowed by the announcement of the planned demerger of Costa Coffee, saying the timing is now right. We agree. There are no synergies from keeping the businesses together and the two management teams should thrive as separate entities. And if they slip-up, we think there will be plenty of suitors to underpin the respective share prices.
"We already expect the management teams of IHG, Marriott, and Accor to be doing their homework. We remain buyers with a 4,500p target price. Our analysis suggests a potential break-up price of 5,200p."
The Numis comment below that a split would add £16.50 to the shares was interesting I thought. PV that for 2 years or so, even at a high rate and these shares should be higher. I sold 1/3 on news of Elliot getting involved as I thought they would take time to get any traction and I was happy with a little over £42 - with the view of buying back in at about £38 as we seem to hover there. As I say, I'm surprised they aren't now higher as the split looks on. I hope to buy on weakness, if there is any. We need some more sum of the parts vals. I agree the pension trustees will want some cash, but can Numis be that wrong? There is also a decent sized REIT in this business! GLA. SL
"I'm not convinced that 2 individual businesses would be worth more than the combined one."
I agree, this is just a fad that seems to go around the industry where you see a trend for consolidation and acquisitions in some industries and then a further fad to break them up again.
The main proponents of this game are the deal flow makers who rake in massive fees from the activity, including activist investors who look for short term gains, and the big 4 accountants who do whatever they can to fudge numbers in my view in an illegally or immoral (wrapped under a legal banner) way to get paid a fortune in legal costs.
If anything this creates two lots of highly paid management teams and board structures, two lots of IT systems, two lots of account practices, legal structures, two lots of payroll staff etc etc etc.
What a game it is.
Looks like the expectation of this was already in the price though and now the news is out perhaps the share price will meander back down below £40.
Shame really as the results on the combined business don't look too bad of late.
I've said before on this BB that although Premier & Costa are quite nice stand alone businesses there is an element of synergy to the 2. Go into a Brewer's Fayre and you will see the Costa machine being kept busy.
I'm not convinced that 2 individual businesses would be worth more than the combined one.
And it surprises me when shareholders who appoint the board of directors complain about their long term strategy.
(ShareCast News) - Shares in Whitbread have climbed on the expectation that two activist investors could force management to spin off its Costa Coffee chain from its Premier Inn business.
Elliott Advisors has built up a 5.3% stake in the FTSE 100-listed company, a regulatory filing confirmed on Monday, though the total stake is reported to be nearer 6%.
The US hedge fund, which reportedly bought into Whitbread a year ago, is to press for a demerger of Costa, the Sunday Times reported.
Elliott, with $34bn of assets under management and a long history of activist campaigns to improve shareholder value, is reported to believe that splitting Costa from Premier Inn would take Whitbread four to five months and cost less than £20m, in order to release around £3bn of additional value.
Elliott is the second US activist investor on the register, with Sachem Head having bought a 3.4% stake in in December., meaning that close to 10% of the company is now held by activist investors. Sachem, headed up by Scott Ferguson, a protégé of notorious Pershing Square Capital activist shareholder Bill Ackman, has been pushing for the separation of the property from the hotel assets, a re-leveraging of the balance sheet, and the separation or sale of Costa.
Whitbread chief executive Alison Brittain, speaking at the release of a weak set of third-quarter numbers at the start of the year, said it was not the right time to consider a break-up as she was about halfway through a "significant transformation plan". But the ex-banking boss said that the board was "very open-minded" about options to increase shareholder value.
Whitbread, where Adam Crozier replaced Richard Baker as chairman last month, is due report its full year figures next week on Wednesday, 25 April.
Shares in Whitbread were up more than 6% to 4,194p on Monday morning, adding to a 3.3% rise on Friday.
"This will inevitably lead to much speculation this morning on the numerous corporate changes that could occur at Whitbread," said analysts at Stifel, adding that many US investors view Whitbread in a different light from mainstream UK investors, more as an investment in hotels, property and Costa together with a lightly geared financial structure.
"We consider it is very unlikely that the current management would separate the freehold assets from the hotel business, or move to a more leveraged financial structure. However, it is possible that Costa could be separated from the rest of the group, particularly if an attractive offer arose for that business.
"With the current subdued outlook for UK consumer stocks and the difficult recent trading at Costa, we are not convinced that a demerged Costa would attain a higher rating than Whitbread currently does. Such a step may, however, be a move towards exploiting value from both parts of the group and would certainly encourage corporate activity. Our sum-of-the-parts valuation is £48.50 per share."
Broker Canaccord Genuity said: "For Whitbread the opportunity is to turn interesting international bridgeheads into material growth opportunities for both Premier Inn and Costa Coffee. For Premier Inn the focus is on Germany and for Costa Coffee the focus is China."
Its analysts said Whitbread is "under-leveraged" with net debt/EBITDA of just 1.1x for FY18E and circa £4bn of freehold assets on the balance sheet.
"The position of the Whitbread pension trustees potentially adds a complication to any break-up as the FY17 deficit was circa £400m with Whitbread paying £95m per annum in contributions."
Numis, noted that a £3bn of extra value would be equivalent to 1650p per share or a 3.5x EBITDA turn on the whole group, said: "In our view it is entirely logical that the two businesses be split at some point, as the natural end game to the unpicking of the conglomerat
Looks like Costa demerger may be on the cards. SP up 10% as I type.
Shares in Costa Coffee and Premier Inn owner Whitbread have jumped 6.5% in early trade on the news that Elliott Advisors, a unit of US activist hedge fund Elliott Management, has taken a 6% stake in the firm.
The move by Elliott has led to speculation that Whitbread could be split up.
Good article in FT but I can't copy it due to their copyright rules.
"acquisition of a portfolio of 19 hotels in Germany, ... for an undisclosed sum" - Would be nice to know what they paid.
"The acquisition includes 13 leasehold hotels (comprising 2,140 rooms), which are already open and trading, and six committed pipeline leasehold hotels (comprising around 970 rooms)"
I would prefer Premier Inn to be rolling out their own hotel specification, that they know works, rather than adopting someone else's design. Hopefully what they have bought fits or can be made to fit the Premier Inn model.
There have been many comments about WTB being ex growth, and operating in mature markets; but today's deal shows where they see growth coming from. The strategy seems sensible and simple - milk the mature markets, invest in new markets to feed the growth.
My own experiences of Premier Inn, the chips with everything buffet at that carvery place, and (although not a fan of cafe culture) a desire to back Costa Coffee over the tax dodgers at S*bucks drew me to WTB, I like to invest in places where I enjoy spending my own money. The ads are true, you can look forward to a comfortable night's sleep and a friendly helpful desk person to get you hooked up to the Wifi.
As you know I am not clever enough to understand value, so I relied on other people's analysis of the prospects for what is a conglomerated mixture of businesses. WTB was plugged hard for its growth performance potential and progressive dividend prospects, unreserved Buy from IC and others even when it hit £50. I believed it was serious about fixing its disposable cup problem, and that its venture into Pure had merit.
I have no idea where all the years of reinvested profit has gone, and despite a superior value experience Premier has not seen off the grotty alternatives. You know what has happened to the sp since, and the dividend is still crummy, so I checked out a while back. I can see why activists are talking about trying to split better value out of the group. Competition is fierce and the cost pressures have beaten the tourist boost from a weak pound.
My hearing is about as reliable as my stock analysis, did he say "Sir Leonard", it was Sir something in a stupid mocking voice, I guess the tape is on the interweb somwhere.
I can't believe the editor felt that 'documentary' was worth broadcasting to be honest. Using the PI brand in the title probably added a few to the viewing figures but it should have been clearly titled as about ISS rather than our beloved purple bricks and mortar.
I've just made use of my 2 for 1 perk and spent a few nights in Devon and Cornwall PIs and although not perfect - breakfast buffet was on offer rather than the cooked to order option - they cannot be faulted for cleanliness, comfort, facilities and ultimately value for money. Hence why both hotels were more or less full judging by the car parks.
All of the staff we met seemed engaged, unstressed and happy to be there so to label a documentary about one or two cleaners working in one hotel in London was poor journalism and well below the usual Dispatches level.
Hopefully ISS will sack the speed merchant for gross misconduct as well. Minging.
"...then he crossed a line mocking the integrity of "Sir Leonard", Morland you oaf, for having the grace to stand by his endorsement. I actually like staying in Premier Inn too."
I didn't see the programme, doesn't sound like I was missing much... beyond that can't really comment. Other than to point out that WTB regularly comes out very high - if not top - on reasonably authoritative, and independent, surveys of "best company to work for" and similar.
I too like staying in Premier Inn, with my most recent (and highly satisfactory) stay only a couple of weeks back... the model works very well for me, and for quite a few others too I know. So not surprised if Sir Lenny (short for Lenworth, I believe) is indeed genuinely a fan too... though whether he is also, like me, a happy (enough) WTB shareholder is open to question...
I saw the programme too, pretty much par for the course as far as Channel 4 is concerned. Always pushing their quasi-Marxist agenda, Channel 4 news is an aberration too, and WE own the bl**dy channel, how scandalous is that?
When you have no skillset and are on minimum wage life is really really hard - but we all knew that already, surely? I'm sure ISS are doing as badly at present as all the other facilities management outsourcees and are not profiteering, so I've no idea what the point of the programme really was.
Fortunately I'm sure only a handful of people would have been watching - everyone else is gorging out on Netflix...
Currently not invested in WTB I was nevertheless very disturbed by the Dispatches non-documentary last evening on Premier Inn although it was hardly about them. Morland Sanders setting up a dummy agency cleaner at ISS who worked (deliberately ?) so slowly after training and initially showing proficiency she then acted up and despite extra help from a supervisor got told to catch up in her own time. Evidently then booted. Sometimes you sweat! Proving how unfair hard work on the minimum wage is, especially if you are unwilling or useless.
Which makes Alison Brittain an undeserving fat cat. Garbage. Shame on Ch 4.
And then he crossed a line mocking the integrity of "Sir Leonard", Morland you oaf, for having the grace to stand by his endorsement. I actually like staying in Premier Inn too.
Did anyone notice the scene where the girl went off to shift in a lift carrying an almighty cup of Costa Coffee ... £2.65 right there, a room cleaned, a third of an hour on the minimum wage in her hand. Or a perk the programme failed to mention which went with the job, along with cheap pickings in the carvery next door at the end of breakfast servery etc? The clue that this was no destitute immigrant being abused, but rather a stereotypical time-poor tv production company runner.
Thanks, Gents, We all seem to think along the same lines about what's the right thing to do at WTB.
There is a case for splitting Costa & Premier, though as I pointed out in my last e mail (typing mistake and all) there are some synergies, and the brands can help promote each other; so for me, if both brands are making money, why sell one off?
Let these guys buy a 30% stake in the business then they can really have a say in how it's run.
"When all the cash has been handed back to shareholder, shareholder hands back the shares to the company saying sayonara !!... End result, a company in a mess loaded with debt -- and this practice is, believe it or not, entirely legal. Immoral, but legal... Private equity operates in a similar fashion, but usually behind closed doors..."
Well, surely handing back shares to the company would be a successful share buy-back, Games? But apart from that... yes, and not just "similar" to PE - straight out the PE playbook, page 1. ..
Hardboy, you are not going mad, it doesn't really work - perhaps one of these, maybe even two at a stretch, but not all three together! And why, exactly? In whose interests?! (I haven't seen any detailed report, only the headlines on the wires, so hard to be clear exactly what they're proposing).
I am all for a bit of provocative activism where there is latent value which management seems unable and/or unwilling to realise, but not seeing that here... there IS a latent value story in separating Costa, but they know that already - and I don't doubt that eventual separation has been the plan all along, they just don't think the time is right yet (and I probably concur). And of course, they don't need to sell it, they can just demerge it to existing shareholders (unless someone offers them the "right" price).
And sale and leaseback of hotels (and pubs?) has long been something WTB ARE doing, just in a measured and incremental way - all fine by me. Ultimately, they don't need the cash, and this all feels like "so last year" - leveraging up to the hilt, voluntarily, just when bond yields are surging would be strange indeed - 'suicide squad' stuff.
All that said - if our activist ends up playing the role of stalking horse for a PE approach (which may of course be their not-very-well hidden agenda)... fine by me. Start me at £50 and you have my attention... and after that, you can do what you want!!
"""I was a bit confused by this bit, if I understood it correctly "Costa sale, sale and leaseback of Premier Inn, debt piled onto the balance sheet " - Sell half the business, sell all the property and increase debt? How does that work?"""
HB it doesn't in reality but for the activist investor it's a dream come true and it's engineered to appeal to the shareholder who ultimately wants out.
1. Sell the properties, hand back the cash to the shareholder
2. Raise a load of debt - hand back the cash to shareholders
3. Sell half the business - hand back the cash to the shareholder
4. Meanwhile the excitement lifts the share price
When all the cash has been handed back to shareholder, shareholder hands back the shares to the company saying sayonara !!
End result, a company in a mess loaded with debt -- and this practice is, believe it or not, entirely legal. Immoral, but legal.
Private equity operates in a similar fashion, but usually behind closed doors, with all the debt raised whilst in private hands or upon flotation.
All along the principle of "The Greater Fool Theory" -- there'll always be one ready to stump up the money.
3.4% stake and they want to tell the company what to do - Get real! Over at Shaftesbury Sam Lee has over 25% stake and still can't get them to do what he wants.
I enjoyed my Cost Coffee with my Brewer's Fayre Breakfast the other day.
I was a bit confused by this bit, if I understood it correctly "Costa sale, sale and leaseback of Premier Inn, debt piled onto the balance sheet " - Sell half the business, sell all the property and increase debt? How does that work?
Reports in the Sunday press that Sachem Head is pushing for the full package: Costa sale, sale and leaseback of Premier Inn, debt piled onto the balance sheet and cash returned to shareholders, etc.
Broker snippets below (my own editing):
"These demands on cash, in particular, would seem to take the situation
closer to Sachem Heads previous activist investments in Autodesk and CDK Global, and to our aggressive Sum-Of-the-Parts scenario of 5,830p (+53% potential upside), so that shares could react positively today. We continue to note that Sachem Heads most successful activist investments have included tickets as high as $785m / 5.9% stakes, and the involvement of other activist funds, so that the board could have grounds not to consider these demands just yet (currently 3.4% interest in Whitbread ie $335m)..."
"In What if?, 3rd January 2018, we explored the potential upside associated with a Costa Sale and full opco propco separation. As we discussed at the time, we believe management is increasingly warming to the idea of a Costa sale (albeit after current turnaround initiatives have been implemented in 12-18 months)...
We see a very low probability of management wanting to engage with an Opco Propco separation of Premier Inn, however... if Costa can be sold at 13x 18E EV/EBITDA this would add c261p to our 3920p base case (4181p). At 15x this would rise to 4442p. This represents 10% to 16% potential upside from the current share price. In the event that management were to embark on a full sale and leaseback this would increase these values to 4747p in our upside case or 5658p in our blue sky scenario."
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