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Decaffeinated Whitbread serves unappealing Brexit blend


If you can’t do without a decaf skinny latte, can you be doing with a decaf skinny Whitbread? Now that the FTSE 100 group has sold its Costa Coffee chain to Coca-Cola for £3.9bn, it is a skinnier hotels-only business — and literally decaffeinated. But should that affect your taste for its shares? Lombard is arguably the wrong person to ask, having once drunk instant decaf for a week without noticing, despite instantly detecting decaf Diet Coke (just don’t). City analysts seem to have an answer, though: and it is yes, they’re a bit yuk.

After Whitbread reported much lower than expected revenue in the three months to the end of February, with further weakness in March and April, and no new guidance on previously flat profit forecasts, some investors spat out their shares, sending the price down 4 per cent. And the problem is not so much the appetite of sellside analysts as shinier-suited salesmen. With half its Premier Inn revenue from business travellers, and 80 per cent of its Inns in the UK regions, Whitbread has been hit hard by Brexit uncertainty. While multinationals are still booking London suites for the C-Suite, and leisure travellers to the capital think the exchange rate is capital, smaller company Mondeo men can’t get a £49 hotel room through expenses.

Whitbread’s fourth quarter like-for-like revenue per available room was down 5.2 per cent in the regions — reducing full-year UK accommodation like-for-likes to an insipid-looking -0.6 per cent. With political uncertainty possibly extending until the autumn party conference season, and MPs unlikely to take their morning coffee in a Premier Inn, it is not likely to get better any time soon. March regional accommodation like-for-likes were down another 4.4 per cent across the industry, with April expected to be worse because of the timing of Easter.

Premier Inn’s appeal to both business and leisure travellers gives it scope to change the blend: it could adjust its pricing to fill hotels with early-booking holidaymakers, and reverse a 140 basis point decline in its occupancy rate to 78 per cent. But that would mean a hit to its full-year 2020 margin. Analysts are bitter enough about that, as it is. Whitbread said it was too early to speculate on changes to previous guidance of flat 2020 pre-tax profit. Morgan Stanley claimed this meant “it drops its previous guidance”, and Bernstein called it a “negative”.

Some costs will evaporate, however. Whitbread said £108m of the £178m it reported as “non-underlying items” were directly related to Costa Coffee’s sale, and most of the other £70m were also temporary: previous joint investments for Premier and Costa, and one-off management restructuring. More worrying are the continuing day-to-day cost increases at Premier: an extra £70m next year for everything from wages to rates, but only £40m-£50m of offsetting cost savings.

Sentiment may therefore cool towards Whitbread, particularly as other hotel groups appear hotter prospects. On Tuesday, while Whitbread was serving up its flat (black and) white, listed hotelier PPHE was offering a more appealing 8.1 per cent increase in like-for-like revpar in the quarter to the end of March, “driven by strong growth in the UK”. Last week, European group Accor reported a quarterly slowdown but still managed a like-for-like revenue increase of 8.8 per cent and full-year revpar guidance of 3 per cent. IHG is expected to signal full-year 2019 revpar growth of around 2 per cent next week.

That suggests Whitbread investors are sitting around with half-empty coffee cups for only one of two reasons. Either they are waiting for Premier’s 7,000-room expansion in Germany to win share in a fragmented market, and sweeten its overall performance. Or they are waiting for the return of £2bn of the Costa sale proceeds, via a tender offer in June.

If it’s the latter, though, there is a risk they will treat the cash like a chai latte — and have it to go.

Four Seasons: who cares?

If a private equity firm buys a low margin retailer, loads it with debt and takes it to the brink of collapse, who cares? No one — bar the staff — would worry themselves to death about one fewer department store. But if a private equity firm buys in to a low-margin care-home operator, loads it with debt and take it to the brink of collapse, the question is literally: who cares? And who will in future? Some 17,000 elderly residents of Four Seasons care homes — plus the staff — will have worried about just that on Tuesday, after its holding companies went into administration.

However, the answer to the question may prove surprising. It was private equity group Terra Firma that burdened a profitable business with £525m of debt to the extent that costs proved unbearable. But it was hedge fund H2 that bought the debt, waived interest on it for 16 months, and has now in effect written it off, so the operating companies can be sold debt-free. H2 may end up bidding, to try to turn losses into profit. And few may welcome a hedge fund as owner. Still, it seems to care more than private equity did — which is really saying something.

JPMorgan: Sirius money

You have to hand it to Chris Fraser, ex-banker and driving force behind Sirius Minerals, would-be miner of polyhalite fertiliser, writes Kate Burgess. Mr Fraser has excelled at convincing backers that there’s brass in Sirius’ muck. Even now, as the cash runs out, he has persuaded JPMorgan that Sirius is within a hoe’s distance of becoming a cash-generating producer of a premium product.

The bank has put its name behind a financing package to raise $3.8bn for a 40km tunnel ferrying polyhalite to the Yorkshire coast. The infrastructure project ranks with HS2 and the channel tunnel. But Mr Fraser’s biggest task is yet to come: he must convince enough customers to pay for POLY4 in a market deep in potassium-rich plant dressings. And it is not always true that where there’s muck, there’s brass.

matthew.vincent@ft.com

Sirius: kate.burgess@ft.com



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