Whitbread is by no means the most exciting company on the market, but it has set itself some exciting growth ambitions and shows every sign of achieving them. Its Premier Inn hotel chain, boasting 55,000 beds at present, wants to get to 75,000 by 2018 and has the extra space contracted to do so.
Meanwhile, it wants to gain business from the independent hoteliers that control a little more than half the market — Premier Inn’s share is about 8 per cent to 9 per cent, so there is plenty to go for.
The Costa Coffee chain wants to double sales to about £1.3 billion by 2016, moving towards £2 billion two years later. It has the advantage that, unlike the hotels market, which is largely static, the supply of coffee shops is growing by about 5 per cent a year.
The Costa Coffee business overseas is marginally profitable, making £1 million or £2 million a year. It is at a stage where further openings, such as adding to the 350 outlets in China, will generate incremental revenues at little extra cost, while there are other regions to move into — Whitbread announced its first branch in the Philippines yesterday.
One analyst was forecasting that Whitbread could double in size over the next five years. All the metrics in the latest trading statement, for the 11 weeks to August 14, were moving in the right direction. Premier Inn increased like-for-like sales by 9.2 per cent over the period, and achieved a record occupancy level of 87 per cent.
Revenues per room, the main measure of performance, were flattish in London but rose by 10 per cent in the British regions, reaping the benefits of the broader economic recovery and the odd one-off, such as the Commonwealth Games.
Costa Coffee lifted like-for-likes by 7.3 per cent. The restaurants operation, which is co-located with Premier Inn, experienced a more modest 1.7 per cent advance, but this is still ahead of the market as a whole.
Whitbread shares, off 8p at £43.90, sell on about 21 times this year’s earnings. That looks like a chunky multiple for what is a stolid business, and the dividend yield is below 2 per cent. Yet those growth ambitions make the shares a strong “hold”.
6.8% like-for-like sales increase
My advice Hold long term
Why Shares are trading on a high multiple, but the options for future growth are there in both core markets, Costa Coffee and Premier Inn
Some of us always had our doubts about the blur business model, which was designed to reinvent the way in which companies recruit staff for important projects. Blur shares were floated at 82p in late 2012 and at one stage approached £8 before collapsing after two profits warnings this year. They ended last night up 5½p at 86½p.
The company had to change the way it recognised revenues, as the earlier model was too optimistic. The halfway figures to the end of June give an indication how over-optimistic: first-half revenues for 2013 were restated at $1.4 million, from $3.4 million as previously reported, and losses deepened from $1.56 million to $2.02 million. First-half losses this year fell further, to $4 million, on revenues of $5.7 million.
The business continues to move forward. It is signing up new clients and there has been a 170 per cent increase in the value of work from repeat customers, while staffing levels remain flat. Blur had to go to the market in June to raise another $22 million, at 75p a share, to take it forward to eventual profitability in 2016. It is an attractive enough business model, but the shares are probably for gamblers only.
Revenue $5.7m
Cash $24.4m
My advice Best avoided
Why Share price still unsupported by earnings
The trouble with setting yourself ambitious targets is that it becomes brutally obvious when you miss them. Three years ago Oxford Instruments said that it would grow annual revenues by 14 per cent a year, while also its increasing return on sales to 14 per cent as well, labelled by the company its “14 Cubed” plan.
That three years was up in June. While the second target was reached, over the period compound annual revenue growth was “just” 11 per cent. The maker of high-tech measuring equipment for industry is blaming, in part, the protracted struggle to acquire the Belfast-based Andor. This took Oxford further into the nano-bio field, but the delay held back revenue growth. That missed target does not amount to much in the general scheme of things. Of more relevance is the sharp decline in the share price, above £18 at the start of this year and up 35p at £11.78 last night after a trading statement that was reassuring, if short on detail.
Oxford gets 95 per cent of its revenues outside the UK, about half of them denominated in dollars, so sterling’s strength is one negative. Others in a similar area, including the larger quoted company Spectris and Bruker, which trades on Nasdaq, have noted some weakness in their end markets.
Orders for the year to date were running ahead of the same period last year. The only slow market is Japan, where authorities appear to be prioritising infrastructure spending over research. The shares sell on a more reasonable 18 times earnings, which suggests plenty of potential long-term.
14% targeted return on sales
My advice Buy
Why Share price fall since start of year looks overdone
And finally . . .
A reassuring statement from Fenner, in that its end markets are not getting any worse, even if they are showing no obvious signs of improvement. The company makes conveyor belts and the like for the mining industry, and the downturn in capital investment there led to a profits warning in May. The shares have traded in a narrow band since, but added about 3 per cent yesterday. Analysts were reassured that profits would be in line with forecasts; all the anecdotal evidence suggests its core market has bottomed out.
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