Inns and outs

Whitbread’s plan to demerge its Costa coffee business was pre-empted when the board accepted a too-good-to-refuse £3.9bn offer for the chain from The Coca-Cola Company. The price was equivalent to almost 50% of Whitbread’s enterprise value, while Costa generated less than 25% of group profit.

Whitbread’s used £2.5bn buying back and cancelling its own shares. It now has 27% fewer shares in issue than at the time the Costa deal was announced. I think the buybacks were a shrewd move and will prove to have been at cheap prices if Whitbread successfully delivers its growth plans for Premier Inn, particularly its expansion into Germany.

On this score, it was encouraging to hear on the post-results conference call that the latest hotel in Hamburg has matured faster than any comparable UK hotel, and that management is “increasingly confident of replicating the UK’s success.”

The company certainly has the firepower to carry out its plans. Yesterday’s results showed cash of £805m on the balance sheet, and borrowings of £882m out of total available facilities of £1.8bn.

Attractive valuation

According to Whitbread’s corporate website, based on data at 1 October, the City consensus forecast for underlying pre-tax profit this year is £374m. At a 19% tax rate this would translate into a bottom-line profit of £303m, and with 133.7m shares in issue, earnings per share of 227p. Buyers of the shares at 4,200p are thus paying 18.5 times forecast earnings.

Despite current challenging market conditions in the UK, I think Whitbread’s valuation is attractive on a long-term view. Meanwhile, in the near term, I wouldn’t be at all surprised if the company received a takeover offer.

Disappointing

Reckitt Benckiser described the Q3 results it unveiled yesterday as “disappointing.” While its hygiene home division, which generates about 35% of group profit, performed well, with like-for-like revenue growth of 4.5%, its larger health division saw a 0.3% fall in revenue, primarily due to issues in the US and China.

Chief executive Laxman Narasimhan said: “This performance is a reflection of an extended period of significant change and disruption in the company.”

Discount valuation

Since the start of 2018, under its RB 2.0 project, the company has been transforming hygiene home and health into two structurally independent business units, a process expected to be completed by mid-2020.

I’ve been saying for a while I think there’s a strong case for formally splitting the company, in the same way Whitbread had planned to demerge Costa. The latest results add to my conviction, and an announcement this week of a new chief financial officer joining the company by April adds to my hope it will happen.

At a share price of 5,800p, RB is trading at 16.5 times forecast 2020 earnings, compared with a sector rating of around 20 times. I could see the company closing the discount over time on improved operational performance, or moving to a premium in short order if it announces a demerger next year.

The post Have £2,000 to invest? I’d buy these 2 FTSE 100 stocks right now appeared first on The Twelfth Magpie.

More reading

• Start buying shares with just £20 a week? Here’s how even that could help someone build wealth
• Here’s how putting £800 a month into a Stocks and Shares ISA from age 27 could fund a £2m retirement!
• Relying on the State Pension for retirement? Here’s why it might not be enough
• 3 beaten-down FTSE 100 shares to consider buying and holding for a decade
• How much would you need in a SIPP to replace a £3,000 monthly salary?

G A Chester has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

I also see great value on offer for investors checking-in to Elegant Hotels Group (LSE: EHG), the owner and operator of seven luxury hotels in Barbados.

Short-term headwinds

The Whitbread share price was comfortably above 5,000p little more than a month ago, but is currently nearer 4,500p. In its annual results, released at the end of last month, the company reported a decline in business and leisure confidence in the last quarter of its financial year ended 28 February, leading to weaker domestic hotel demand.

It further said: “This weakness has increased into March and April particularly in the regional business market, coinciding with an acute period of political and economic uncertainty in the UK.”

Compelling long-term growth story

Despite the short-term market challenges, it’s the long-term growth story for the Premier Inn business that I find compelling. There’s still plenty of expansion to come in the UK, and the company is accelerating its plans to replicate the domestic, multi-decade success story in Germany. This has been helped by the £3.9bn sale of its Costa Coffee business to The Coca-Cola Company earlier this year.

The main reason I’d be happy to buy Whitbread’s shares today (on 19 times forward earnings with a 2.1% dividend yield) is the prospect of strong, multi-decade earnings and dividend growth. However, there are also possibilities of more immediate returns. City analysts reckon Whitbread’s current valuation makes it attractive for a takeover bid, while activist investor Elliott Advisors is reportedly agitating for the company to unlock value from its £5.8bn property portfolio.

Eye-catchingly cheap

Over in Barbados, Elegant Hotels reported a solid performance in its half-year results today — despite a competitive market — with a 5% increase in underlying profit before tax on 3% higher revenue. Management said it has good visibility of bookings for the remainder of the year, and is comfortable with current market expectations.

The stock trades at an eye-catchingly cheap 7.5 times forward earnings at a share price of 71.5p (up 3.6% on the back of today’s results). A prospective 4.7% dividend yield also spells value, as does the company’s freehold-property-backed implied net asset value of 156p a share.

Well-backed business

Despite it being a smaller company — its market capitalisation is £63.5m — I find it hard to understand why the stock is trading at such a cheap valuation.

Renowned entrepreneur Luke Johnson is a non-executive director and 12.5% shareholder (albeit his Midas-touch reputation has been somewhat tarnished by the recent collapse of Patisserie Valerie’s parent company). And Elegant’s shareholder register is also packed with blue-chip institutional names, including the asset management arms of Schroders and Close Brothers.

Looking to the future

The company plans to expand in a measured manner, both on Barbados and further into the Caribbean, whilst ensuring its balance sheet remains robust. With its cheap valuation, nice dividend, and growth prospects, I rate the stock a ‘buy’. Indeed, I think it has potential to be a long-term big winner for investors today.

The post This FTSE 100 market leader isn’t the only stock I’d buy today appeared first on The Twelfth Magpie.

More reading

• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?

G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Schroders (Non-Voting). Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

My Foolish colleague Roland Head has described the sale as a great-tasting deal for Whitbread. I agree with him and I’ll explain shortly why I believe the stock is a bargain buy today. First, I want to tell you about another FTSE 100 company that I also rate a great-value buy.

Sunken share price

Cruise ship group Carnival (LSE: CCL), which owns the line of the same name, and a number of others, including P&O Cruises and the Cunard Line, is the biggest cruise ship operator in the world. Its shares have often looked expensive on paper. However, they’ve sunk significantly from an all-time high of 5,380p in August last year, including a 10% drop on the release of the group’s annual results yesterday afternoon. I reckon they’re now way oversold. At 3,850p, and with the company having posted record revenue and earnings, they’re as cheap as chips by historical standards.

Revenue for the financial year ended 30 November was up 7.8% to $18.9bn and adjusted earnings per share (EPS) increased 11.5% to $4.26 (335p at current exchange rates). The board hiked the dividend 21.9% to $1.95 (153.5p). At the current share price, the price-to-earnings (P/E) ratio is 11.5 and the dividend yield is 4%.

Management said cumulative advance bookings for fiscal 2019 are considerably ahead of the prior year, and that it expects adjusted EPS in the range of $4.50 to $4.80. The midpoint of $4.65 (366p) makes the forward P/E just 10.5, compared with 16 this time last year. Stock markets are jittery at the moment, and I reckon this is a great opportunity to buy a slice of a high-quality business with a strong driver for growth. As my Foolish colleague Rupert Hargreaves has discussed, demand for cruises has increased rapidly over the past few decades and looks set to continue for many years to come.

Premier investment

Whitbread’s disposal of Costa Coffee — set to complete in the first half of 2019 — will enable it to focus on its remaining business: the UK’s biggest hotel chain, Premier Inn. There was never a compelling reason for having these two businesses under the same roof, as there were few synergies, and the sale of Costa received the overwhelming support of shareholders.

I believe Premier Inn has a bright future as a standalone company. Management gave underlying EPS for the first half of the current year, with Costa excluded as a discontinued operation. The annualised figure is 236.4p, giving a P/E of 18.8 at a current share price of 4,450p. However, I believe it’s a lot cheaper than that P/E suggests, due to the huge chunk of cash to come in from the Costa Sale, and what the company has called “the significant structural growth opportunities available to Premier Inn in the UK and internationally.”

Management reckons it has a growth runway in the UK that could take its current 74,000 rooms to 100,000 and beyond. Meanwhile, the potential to repeat the success in Germany, where its current pipeline is near 6,000 rooms, makes for a compelling opportunity, in my view.

The post The Whitbread share price isn’t the only FTSE 100 bargain I’d snap up today appeared first on The Twelfth Magpie.

More reading

• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?

G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Carnival. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The company released its Q1 results today and the shares are up 2.7% to near the 4,000p level at which they started the year. Let’s have a look at the results before returning to that 5,200p valuation.

In-line with expectations

On the face of it, some of today’s numbers were disappointing. Costa’s like-for-like sales were down 2% and Premier’s were down 0.9%, giving the group an overall decline of 1.9% in like-for-like sales. However, this was no worse than analysts were expecting, reflecting well-known recent trends in the UK hotels market and retail footfall weakness in traditional shopping locations.

More positively, Costa’s total sales growth was 4.9%, due to a strong contribution from new stores and Express machines, and Premier’s was 2.2%, driven by additional capacity. Overall sales growth was 3.2%. The company reported good progress on its £250m efficiency savings and chief executive Alison Brittain said: “We expect to deliver in line with expectations for the full year.”

Consensus forecasts

City analysts expect Whitbread to deliver a £610m pre-tax profit on revenue of £3.5bn for its financial year to February 2019. The consensus forecast for earnings per share (EPS) is a 2.3% rise to 266p, while the dividend is expected to be increased 4% to 105p.

At the current share price, the forward price-to-earnings (P/E) ratio is 15 and the prospective dividend yield is 2.6%. The P/E doesn’t appear to offer great value given the low-single-digit EPS growth, while there are plenty of far higher dividend yields available among the company’s FTSE 100 peers. So what’s that potential 30% upside to 5,200p I mentioned earlier all about?

Demerger of Costa

Many analysts have been saying for years that there are no synergies from keeping Premier and Costa together and that the two management teams should thrive as separate entities.

There are no synergies from keeping the businesses together and the two management teams should thrive as separate entities. Whitbread finally succumbed to pressure from activist investors. It announced in April that it is “committed to a demerger of Costa, … expected to be completed within 24 months.” The company said today that good progress is being made on the core infrastructure and efficiency work in preparation for the demerger.

A win either way?

Analysts at Canaccord said in April:“We remain buyers with a 4,500p target price. Our analysis suggests a potential break-up price of 5,200p.” I’d go along with that valuation. Furthermore, there’s a fair chance value could be outed sooner rather than later by a bid for Costa before the demerger.

However, I rate Whitbread stock a ‘buy’ not only because of the value-outing potential of a disposal of Costa, but also because of the medium-term prospects of Costa and Premier, if we get to a demerger. In the case of the former, I see great potential in Costa China and Costa Express and, in the case of the latter, in the rollout of Premier Inn Germany.

The post Could FTSE 100 stock Whitbread rise to 5,200p? appeared first on The Twelfth Magpie.

More reading

• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?

G A Chester has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Look, I’m not going to pretend that the foodie’s full-year financials didn’t throw up some serious cause for concern. Like-for-like sales at Domino’s grew just 1.5% during the first nine weeks of 2016, the company advised, an eye-watering reduction from the 7.5% advance enjoyed during the whole of 2016.

While the structural market for the takeaway sector remains strong, Domino’s has suffered more recently as competition from the likes of Pizza Hut has heated up. But I believe the step back from record sales growth should not prompt investors to panic as the company’s multinational expansion strategy still offers a tremendous amount of upside.

Domino’s famously hiked its UK store target in November to 1,600 sites from its prior target of 1,200, and the company plans to have 80 of these outlets up and running by the close of the year.

And the pizza powerhouse also sees huge potential overseas. Not only does the company plan to boost the number of stores it operates in Europe by around 300% (to 400 outlets), but Domino’s also remains busy on the acquisition front to boost overseas sales, the company more recently buying out Norwegian rival Dolly Dimple’s in March for £4m.

Piping hot

The City certainly expects Domino’s Pizza to keep on delivering the goods, and while some analysts have cut their estimates following March’s update, the business is still anticipated to keep on grinding out delicious earnings growth for some time yet.

Indeed, the number crunchers expect Domino’s to report bottom-line expansion of 11% in both 2017 and 2018. And I reckon the prospect of delicious, double-digit earnings growth further out merits a slightly-toppy forward P/E ratio of 20.8 times.

The business of catching so-called falling knives is always tricky, needless to say. But I strongly believe Domino’s could be on the cusp of a fresh move higher as the fruits of huge expansion, allied with the impact of massive investment in the fast-growth digital channel, becomes clear.

Take a sip

Like Domino’s, I reckon the vast amounts Whitbread (LSE: WTB) is throwing into spreading its international wingspan should also deliver exceptional profits growth in the coming years.

Whitbread saw group sales chug 8.2% higher in the 12 months to February 2017, to £3.1bn, with sales at Costa Coffee rising 10.7% as the installation of new stores across the globe (not to mention its highly-popular ‘Costa Express’ machines) paid off. And the 3,816 gross new UK rooms at Premier Inn helped push sales here 9% higher from a year earlier.

Solid demand for Whitbread’s cut-price beds and premium coffee has seen earnings bound relentlessly higher in recent years, and the City expects this trend to continue with expansion of 4% in fiscal 2018 and 8% the following year.

And while a prospective P/E ratio of 16.6 times is great value given Whitbread’s exciting growth plans, in my opinion, I reckon this could lay the foundation for a significant share price re-rating.

The post 2 growth goliaths I’d buy before it’s too late appeared first on The Twelfth Magpie.

More reading

• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?

Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Domino's Pizza. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Build a fortune

I’m convinced the underlying strength of the British housing market makes Redrow (LSE: RDW) one of the strongest growth picks out there.

While the explosive property price growth of previous years looks set to end in 2017 as homebuyer appetite cools, the huge gulf between housing supply and demand means that house prices are unlikely to fall off a cliff any time soon.

Nationwide chief economist Robert Gardner commented this week that, despite fears over the impact of Brexit on the wider economy, “demand conditions have strengthened a little in recent months, reflecting the impact of solid labour market conditions and historically low borrowing costs.”

And despite concerns over the health London property market, Redrow is managing to overcome the worst of these troubles thanks to its limited exposure to high prices in the capital. Private reservations at the firm rose 6% during the 19 weeks to November 4, and the order book advanced 29% year-on-year to £941m, easing fears of a sharp demand slump.

And Redrow is expected to fare better than many of its rivals in the near term with modest earnings dips widely predicted across the sector. By comparison Redrow is predicted to punch a 3% earnings rise in the period to June 2017.

This forecast leaves Redrow dealing on a P/E ratio of 7.2 times, some way below the FTSE 100 forward average of 15 times. I reckon any risks to the construction specialist’s earnings outlook is more than priced in at these levels.

Take a sip

Coffee house and hotel giant Whitbread (LSE: WTB) has seen its share price tank again in recent months, a 20% fall since the start of September taking it to within a whisker of fresh multi-year lows just this week.

This weakness reflects to a large degree fears over the profitability of leisure stocks like Whitbread as Brexit-related turbulence hits the economy from next year and beyond. However, I believe the business has what it takes to navigate these waters by grabbing market share, and reckon now is a great time for value hunters to nip in.

The Premier Inn owner is well on track to meet its goal of 85,000 rooms by 2020, and it sees the potential for 100,000 of its low-price rooms in Britain beyond that. And Whitbread also has big plans for its Costa Coffee franchise, the company targeting 2,500 UK outlets by the close of the decade and 3,000 further out.

And Whitbread has eyed expansion in Germany and China for Premier Inn and Costa Coffee respectively to spearhead its international growth plan, steps that will also reduce the impact of a possible downturn in the domestic economy.

The number crunchers certainly expect earnings to keep rolling higher at Whitbread, and a predicted 1% bottom-line rise for the period to February 2017 is anticipated to speed to 6% in the following period.

These projections create very-decent P/E ratios of 14.1 times for this year and 13.3 times for fiscal 2018. I reckon this is a bargain for a firm with Whitbread’s electric growth potential.

The post 2 shockingly cheap growth shares appeared first on The Twelfth Magpie.

More reading

• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?

Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Redrow. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

InterContinental reported that sales growth had slowed during July-September, the company reporting a 1.3% rise in revenues per available room. This is down from the 2% advance recorded for the first half.

The hotel operator saw sales in its Asia, Middle East & Africa division dip 0.1% during the three-month period, while revenues in Europe flatlined in Q3. But InterContinental continued to perform well in the Americas and Greater China, and sales here rose 1.9% and 0.9% respectively.

This led the Footsie hotelier to advise that “despite the uncertain environment in some markets, we remain confident in the outlook for the remainder of the year.”

The City certainly doesn’t appear to be too concerned by InterContinental’s earnings outlook either, certainly not in the immediate term. Indeed, the beds behemoth is anticipated to enjoy a modest earnings uptick in 2016, before punching a splendid 17% advance in 2017.

These figures create P/E ratings of 22.1 times and 19 times respectively, for Intercontinental, sailing well above the FTSE 100 average of 15 times.

And value hunters will no doubt be put off by the firm’s dividend yields of 2.2% for 2016 and 2.4% for next year, which fall some way short of the big-cap average of 3.5%.

However, I believe InterContinental’s ambitious expansion strategy — a scheme that saw it open 51 new hotels during the last quarter alone — and its bold plans for growth markets like China still make it an attractive stock candidate for long-term investors.

Beverages beauty

Unlike InterContinental, whose vast international presence has helped keep its share price bubbling around August’s record peaks, fellow leisure play Whitbread (LSE: WTB) has seen its value trickle lower again as investors’ Brexit fears have gained momentum.

However, I believe this insipid market appetite makes the Premier Inn and Costa Coffee owner a great pick for contrarian investors.

Whitbread is expected to punch more modest earnings increases of 2% and 7% in the periods to February 2017 and 2018 respectively. Yet these numbers result in very-reasonable P/E ratios of 15.6 times and 14.6 times.

Dividend yields of 2.5% and 2.7% may also lag the big-cap average, but I reckon Whitbread should provide tasty returns in the years ahead.

While demand for its British hotel beds has softened more recently, I expect this to pick up again as the firm’s expansion drive continues and the weakness of sterling draws holidaymakers from abroad. And Whitbread may also benefit from sleepy travellers ‘trading down’ from more expensive accommodation providers.

On top of this, demand for Costa Coffee’s beverages continues to gain traction too, prompting Whitbread to create between 230 and 250 new outlets across the globe this year alone.

I believe both InterContinental and Whitbread remain solid picks for growth hunters.

The post Which of these FTSE 100 leisure stocks should you buy after today’s news? appeared first on The Twelfth Magpie.

More reading

• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?

Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

The post Why earnings are expected to explode at AstraZeneca plc, Whitbread plc and Photo-Me International plc! appeared first on The Twelfth Magpie.

More reading

• Down 14% to below £135, here’s where AstraZeneca’s deeply undervalued share price ‘should’ be trading today
• The top 3 FTSE shares for beginner investors to consider buying in 2026
• 2 FTSE shares for beginners starting an ISA
• 3 UK shares to consider holding in a Stocks and Shares ISA for a decade

Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended AstraZeneca. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.