Costa now accounts for 20 per cent of group profits having grown turnover by a heady 24 per cent in the financial year and increased profit by 38 per cent to £69.7m. There are few signs that the growth is slowing as the business has enjoyed a good start to the new financial year and plans to add a further 350 new outlets to the chain this year. Returns on capital are huge at 32.4 per cent, which should provide management with plenty of incentive to continue the expansion apace.
Last year, 175 new outlets were opened in the UK and 157 were opened overseas which took the total to 2,203. These young stores should help provide seeds of growth in 2012 as they ramp up sales. In the UK, like-for-like sales growth was a healthy 5.5 per cent last year and the double dip recession may not pose too many challenges considering that Costa grew happily through the first dip and justified management's insistence that it was an affordable luxury. The group's self-service coffee-machine business has also been making big strides forward and the roll-out is ahead of target with 1,192 machines deployed.
There has recently been talk in the market that Costa could be demerged from the rest of the group which could create some noteworthy upside for shareholders. But the growth engine would be sorely missed; trading at the hotel and restaurant division has been changeable from month to month. While underlying operating profits here rose 4.3 per cent to £296m, the consumer outlook may be worsening with plenty more austerity to come, so life is unlikely to get any easier. Broker Investec also points out that about 80 per cent of Whitbread's Premier Inn value hotels are in provincial locations, which could face a particularly tough time.
Broker Peel Hunt forecasts current year pre-tax profits of £326m and EPS of 137p (2012: £320m and 134p).
|ORD PRICE:||1,882p||MARKET VALUE:||£3.3bn|
|TOUCH:||1,881-1,883p||12-MONTH HIGH:||1,890p||LOW: 1,344p|
|DIVIDEND YIELD:||2.7%||PE RATIO:||12|
|NET ASSET VALUE:||721p||NET DEBT:||39%|
|Year to 1 Mar||Turnover (£bn)||Pre-tax profit (£m)||Earnings per share (p)||Dividend per share (p)|
Ex-div: 16 May
Payment: 13 Jul
Whitbread has performed well and Costa still has plenty of potential. However, trading conditions look set to get worse as 2012 progresses and, on 14 times forecast earnings, the shares are fair value. Hold.
Last IC View: Fairly priced, 1,635p, 18 Oct 2011