Whitbread has expanded its coffee empire with a £59.5m purchase, but a slowdown at its Premier Inn business has taken the shine off the news.
The company is buying self service coffee bar Coffee Nation, and will use it to expand its Costa Coffee business by developing a new Express brand. It wants to have 3,000 self service coffee bars across the country in the next five years. At the moment there are 2,000 in total, of which Coffee Nation has 900.
In an accompanying trading update, the company said its full year results would be in line with expectations - currently between £270m and £298 - with total sales up 12.4% in the 11 weeks to the middle of February. But sales at Premier Inn disappointed, rising by 5.1%, but sharply down from the 8.7% growth in the previous quarter. Whitbread has been cutting room rates to as little as £29 a night to attract business and leisure customers looking for bargains. Costa Coffee sales growth was also lower, at 3%.
The slowdown has left Whitbread's shares 68p lower at £16.66, making it the biggest faller in the FTSE 100. But most analysts are still positive on the business. In a buy note, Hugh-Guy Lorriman at Seymour Pierce said:
As comparables toughen, Whitbread's ongoing healthy like-for-like growth looks impressive. With its high returns and very strong balance sheet we think industry star status is merited and a 20 times rating is not unreasonable. [Coffee Nation] looks like a new growth platform for Costa and supports the ongoing investment in this brand and market.
Whilst not expensive relative to its hotel peers, Whitbread has almost 100% profit exposure to the UK consumer and, on this basis, is trading at a material premium to other freehold backed, UK-focused leisure companies such as Mitchells & Butlers.