Hardboy
26 Apr 2018
Re: Sum-of-the-parts valuation Number, Doug: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.
Uncle Doug
26 Apr 2018
Re: Sum-of-the-parts valuation 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.
red fox
26 Apr 2018
Preliminary Results From Whitbread press release 25/4/18Strong revenue growth of 6.1% and market share gains in both Premier Inn and CostaDisciplined cost management enabling underlying profit growth of 4.5% to £591 millionPremier Inn underlying operating profit growth to £498 million, Costa increased to £159 millionStatutory profit before tax growth of 6.4% to £548 millionGood discretionary free cash flow conversion of 94%, delivering £585 million to reinvestStrong balance sheet with net debt of £833 million and facilities of £1.8 billionReturn on capital increased 20 bps to 15.4% whilst continuing to grow market share Aim to open 1200 Costa stores in China by 2022
numberbiter
25 Apr 2018
Re: Sum-of-the-parts valuation 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.
Hardboy
25 Apr 2018
Re: Sum-of-the-parts valuation Yes steady growth in sales and profits across the board, nice little rise in dividend, plenty of investment in growth, yet still able to reduce debt & the pension deficit. That's just about what one wants from a long term investment. I'm not keen on the demerger, but I can see some logic in it, and it would appear markets will be favourable (short term - long term it depends how the 2 parts perform.) It will be interesting to see the exact detail when it is developed.
Uncle Doug
25 Apr 2018
Re: Sum-of-the-parts valuation Seems as the day wore on and markets absorbed these results that sentiment picked up. IMO the results are very good and the demerger is going to bolster the SP.
Hardboy
25 Apr 2018
Re: Sum-of-the-parts valuation 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.
red fox
25 Apr 2018
Re: Sum-of-the-parts valuation From Hargreaves LansdownCanaccord 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."
gamesinvestor
25 Apr 2018
Re: Sum-of-the-parts valuation "but can Numis be that wrong?"Still - might be worth looking back over a time when they were ever right !Games -- Goldman Sachs said oil would be $200 a barrel in 2017 -- just as one example of wildly wrong.
Still learningafterallthistime
25 Apr 2018
Re: Sum-of-the-parts valuation 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
schwee
25 Apr 2018
Re: Sum-of-the-parts valuation Gamesinvestor,Your comments are spot on. And of course the pension trustees will want a share of the spoils up front as well.
gamesinvestor
25 Apr 2018
Re: Sum-of-the-parts valuation "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.Games
Hardboy
16 Apr 2018
Re: Sum-of-the-parts valuation 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.
BlackPrince
16 Apr 2018
Re: Sum-of-the-parts valuation We shall see. In my experience this is a share that doesn't fail to disappoint.
red fox
16 Apr 2018
Sum-of-the-parts valuation £48.50 per share? From Hargreaves Lansdown today[link] 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
