Whitbread's shares bolstered by Barclays upgrade

Whitbread’s shares were given a boost on Friday after Barclays lifted its rating on the stock to ‘equal weight’ from ‘underweight’ and raised the target price to 4,150p from 3,340p.

Barclays said it expects the owner of Costa coffee shops and Premier Inn hotels to report a “good” third quarter and an “excellent” fourth quarter trading statement on 26 January on the back of strong data in London and the UK.

The bank noted that updates elsewhere in the sector, including Mitchells & Butler, show that restaurants have performed well. Whitbread owns restaurants Beefeater Grill and Table Table.

Barclays also expects coffee shops to have benefitted, particularly given the easy comparatives at Costa.

“While Whitbread has had a good run as investors have seen this data, we still see potential for the update to be a positive catalyst,” Barclays said.

“We upgrade our earnings per share estimate by 2.7% in fiscal year 2016/17 and 5.6% in 2017/18, reflecting stronger third quarter and fourth quarter trends and our expectation for a good first quarter 2017 (strong services purchasing managers’ index) but weaker second to fourth quarter this year.”

However, the outlook on the revenue per available room (RevPAR) for the group’s hotel business looks “fraught with uncertainty” amid Brexit, Barclays said.

Strong UK macro growth with a continued weak pound would support RevPAR, putting it at the higher range of Barclays’ guidance of between 2% and 5% over the next year.

Barclays said the weaker pound and terrorist attacks elsewhere in Europe has boosted tourism in the UK. The drop in sterling has also led to more ‘staycations’ with British residents opting for domestic holidays.

Shares rose 1.83% to 4,145.38p at 1112 GMT.