Whitbread looks to buy London property

Whitbread (WTB) could spend as much as £575m on capital investment this year as management eye up a number of freehold properties in London. These would be used to bolster Premier Inn's presence in the capital's booming hotel market. The chain is already doing very well: London sales grew 17 per cent in the third quarter, with average occupancy levels as high as 89 per cent.

Growth was only slightly less frantic in the regions, where Premier Inn continues to snatch market share from its rivals. Over the 39 weeks to 27 November the chain's total sales rose by nearly 15 per cent, with three-fifths of the growth coming from existing hotels. Revenue per available room rose 9 per cent as occupancy levels reached a record high of 84.2 per cent.

Thanks in part to this stellar performance from Premier Inn, trading across the entire Whitbread portfolio has been strong. For the 13 weeks to 27 November group sales grew by 13 per cent, or 6 per cent like-for-like. The Costa coffee brand is also in robust health, reporting 5 per cent like-for-like sales growth for the quarter. The group is on track to open 230 new Costa stores worldwide this financial year, net of closures.

Chief executive Andy Harrison reassured investors that the company would meet its full-year targets, particularly if the final quarter ending in February remains snow-free.

Numis says…

Add. Whitbread's third-quarter trading update is strong, and we believe there's scope for upgrades to consensus numbers. As ever, however, this depends on favourable weather conditions in the final quarter. Trading has been strong throughout the first three quarters, aided by special events such as the Commonwealth Games. Comparatives will be tougher in the fourth quarter, as relatively benign weather favoured Premier Inn and Whitbread's restaurants last winter. But both Premier Inn and Costa are expanding rapidly: international sales for the latter grew 18 per cent at constant currencies during the third quarter. Expect full-year EPS of 206p.

Deutsche Bank says…

Hold. Whitbread's third-quarter performance keeps the full-year forecasts nudging ahead, which is what the shares need following the past year's rerating. Whitbread's stock has outperformed the FTSE All-Share by 3 per cent over the past quarter and by 28 per cent over the past 12 months, as the medium to long-term growth story continues to find favour with investors. We've upgraded our own pre-tax profit forecast by £6m to £479m for the current financial year, which gives EPS of 206p. An update on future growth milestones due in April 2015 should help maintain longer-term interest in the stock.