Broker snap: Whitbread a 'sell' after LFL sales miss



LONDON (ShareCast) - Investec (LSE: INVP.L - news) has retained its 'sell' rating and 2,000p target price for Costa coffee, restaurant and hotel owner Whitbread (LSE: WTB.L - news) on the back of a like-for-like (LFL) sales miss in the fourth quarter and an unattractive valuation.

In a pre-close trading update on Tuesday morning, Whitbread said that full-year LFL sales in the year to February 29th 2013 rose by 3.7% year-on-year, below Investec's 4.2% estimate owing to underperformance in the fourth quarter.

Nevertheless, with group reported revenue up 14.8% (for the first 50 weeks of the year), the broker said it is leaving its full-year forecasts "virtually unchanged" after a strong performance from Premier Inn and Costa. Restaurant revenue was a worse than expected due to poor weather over Christmas.

The outlook statement from the company suggested that results should be in line with expectations with LFL trends remaining robust, Investec analyst James Hollins said.

However, the broker kept its bearish recommendation on the stock, based on six main points: "1) low free-cash-flow yield; 2) limited cash generation post-investment capex; 3) diminishing marginal long-term hotel returns; 4) negligible capital-light international hotel growth opportunities; 5) a resurgent Travelodge and Starbucks; and 6) premium multiples with a sub-market average dividend yield".

Shares were down 3.13% at 2,482.67p by 09:54 on Tuesday.


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