Some may wonder yet again whether Alison Brittain’s first action after arriving as chief executive of Whitbread last year should have been spinning off the Costa coffee business from the Premier Inns hotel chain and allied restaurants.
That horse has almost certainly got away. The first-quarter trading statement shows some improvement for both businesses from the fourth quarter, but it was minimal. Whitbread may have been one of the first British consumer-facing businesses to warn about the squeeze on spending from rising inflation and stalling wages, at the time of its results in April, but those pressures are still there. Added to that has been a rising tide of terrorist incidents.
Costa produced a 1.1 per cent rise in like-for-like sales in the first quarter, a better outcome from the 0.8 per cent fall in the fourth quarter, although there were special factors that depressed that number. The chain remains in a fiercely competitive market, while attempts to increase its food offering put it up against rivals such as Greggs.
The business is facing inflationary pressures from higher coffee prices, despite hedging, and the national living wage. One is inclined to wonder whether, if consumers start to feel the pinch, the £3 cup of coffee may be one of the first savings.
Premier Inn is seeing improvements in revenues per room, 3.1 per cent in the first quarter. It is better insulated against a downturn from further attacks because half its customers are business travellers. The hotels also have done well from the weak pound, which is tempting foreign visitors, but, as far as the reported figures go, this will start to drop out after the anniversary of the Brexit vote.
Whitbread’s borrowings, at about £600 million, are negligible in terms of its £7 billion market capitalisation. It has the benefit of £150 million of cost savings over the next few years and two strong brands with the ability to grow them both. The overseas business, including a hotel in Frankfurt and Costa in China and elsewhere, is of little relevance yet.
The shares, up 131p at £39.84, are almost 10 per cent below where they were at the start of 2016. They sell on 16 times earnings, which does not suggest much upside.
MY ADVICE Avoid
WHY Whitbread is well placed for future growth longer term, but both main businesses are exposed to any downturn in consumer spending
Nextenergy Solar Fund
It is a regular pattern of share issues by income-focused funds such as Nextenergy Solar that they announce issues of an amount and then have to upscale them substantially because investor interest is so high. Last week Nextenergy, which came to the market in April 2014 to invest in renewable energy, said that it wanted to raise £100 million to fund existing commitments.
These include £111 million of projects in advanced negotiations and another £147 million further down the road. The fund has cash and credit facilities of £100 million, so plainly fresh money was needed. That planned fundraising has been increased to £126.5 million and applications had to be extensively scaled back.
As it announced the placing, Nextenergy said that it was seeking approval of investors to move outside the UK, with up to 15 per cent of the assets to be invested in other OECD countries. The reason for the high interest in the shares, issued at 110p, is clear enough. At that price, and based on the expected dividend when the company reports next week, the yield is 5.7 per cent. Compelling enough.
MY ADVICE Buy
WHY Dividend yield is substantial and looks safe
Walker Greenbank
Walker Greenbank is one of those companies doing well selling British design flair overseas, in places such as the United States, Japan and western Europe.
The company, which has been around for more than a century and picked up the historic Arthur Sanderson and Morris & Co brands in 2003, has two factories, in Lancaster and Loughborough, making about half its output. It also produces for companies such as Colefax & Fowler and Osborne and Little.
Last year it bought Clarke & Clarke, another upmarket brand, for £25 million, funding part of the deal with a £17 million placing. This has strong links with the US; its brands, including Studio G, are now being made in the UK.
The trading update shows that the British market is predictably flat and growth is coming from overseas, which accounts for two fifths of the business. Sales of its main brands were up by 4.5 per cent, excluding Clarke & Clarke, or 1.1 per cent in constant currency terms. Last year there was some disruption from floods in Lancaster late in 2015, but this is largely over and Walker Greenbank is about to receive the last of a £19.3 million insurance payout to compensate for this.
This financial year it will receive a full contribution from Clarke & Clarke, though with most of the sales coming pre-Christmas in the second half analysts are not inclined to raise their forecasts yet. The shares, off 2½p at 198p, sell on a reasonable 12 times earnings.
MY ADVICE Buy
WHY Scope for further overseas growth
And finally . . .
Mercia Technologies, an investor in early stage technology companies in regions other than the overheated southeast, has put more money into Impression Technologies, a Coventry-based business spun out of the University of Birmingham. It is developing a new technology that presses aluminium components for the automotive sector, with clients including Aston Martin. Mercia’s partner in this is Touchstone Innovations, which is battling a hostile offer from yet another backer of start-ups, IP Group.
