Stick with Whitbread on takeover hopes, Canaccord says

Investors should stick with Whitbread shares despite weak trading because it is financially strong and a potential takeover target, Canaccord Genuity said.

Nigel Parson, Canaccord’s analyst, reiterated his ‘hold’ recommendation on Whitbread and left his price target of £51 unchanged after the budget hotel operator warned that economic uncertainty had reduced demand for its hotels.

Whitbread sold the Costa coffee chain in January, leaving the owner of Premier Inn with a business focused on its Premier Inn hotels. Parson said that although investors were disappointed by the trading update, the shares should be supported by Whitbread’s plan to return £2.5bn of Costa sale proceeds to shareholders.

He also said that the valuation was underpinned by about £5bn of freehold assets and a good record of weathering difficult markets. Whitbread could also be bought, he added.

“We retain our ‘hold’ recommendation, as we believe [Whitbread] remains vulnerable to takeover by a global hotel player acting in consort with a property fund or private equity,” Parson wrote in a note to clients. “Potential buyers could include InterContinental Hotels and Marriott or private equity.”

Parson said his estimate of a 1% decline in revenue per room this year may be too optimistic. Consensus forecasts for annual profit are likely to decline to a range of £400m to £415m, he added.