Why I’d Sell Enterprise Inns plc And Buy Whitbread plc And Standard Chartered PLC

These 2 stocks offer far greater potential than Enterprise Inns plc (LON: ETI): Whitbread plc (LON: WTB) and Standard Chartered PLC (LON: STAN)

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Shares in Enterprise Inns (LSE: ETI) have been up by as much as 6% today after the pub company released a satisfactory update. It reaffirmed its full year guidance and commented that restructuring was going ahead as planned and on target.

Furthermore, trading in the first 44 weeks of the year has been positive, with like-for-like net income growth being 0.6%. Despite Enterprise Inns receiving a boost from improving consumer confidence and decent weather, such a figure is nevertheless impressive as last year’s figure included the positive impact of the football World Cup.

However, for the full year Enterprise is still expected to deliver a 1% fall in earnings, with growth of just 2% being pencilled in for next year. This is clearly disappointing and, with the UK economy going from strength to strength, is somewhat surprising.

More worrying for investors, though, is the high amount of debt on the company’s balance sheet, with Enterprise Inns having a debt to equity ratio of 180%. With interest rate rises expected next year, investor sentiment could begin to weaken as increases in interest costs may not be able to be fully passed through to customers, resulting in margin reduction for Enterprise Inns.

Furthermore, Enterprise Inns remains relatively unprofitable, with the company’s return on equity standing at just 2.1% last year. This compares extremely unfavourably with former pub operator Whitbread (LSE: WTB), which now focuses on hotels (via Premier Inn) and coffee shops (via Costa). Its return on equity stood at 18.5% in its latest financial year and, with a debt to equity ratio of just 30%, it is less leveraged as well as being more profitable than Enterprise Inns.

Looking ahead, Whitbread is expected to grow its earnings by 14% in each of the next two years and, with it trading on a price to earnings growth (PEG) ratio of 1.4, appears to offer excellent value for money. Furthermore, its Premier Inn hotel chain, in particular, has significant scope for price rises, since it continues to offer enviable locations as well as a superior standard of service to its budget rivals. As a consequence, Whitbread’s sales and profits look set to keep moving upwards.

Like Enterprise Inns, Standard Chartered (LSE: STAN) is also experiencing a period of change as it seeks to restructure its business. While this will inevitably mean some short term pain, for example dividends were slashed by 50% this week, it remains a hugely appealing investment opportunity.

Not only does Standard Chartered have exposure to a region that is undergoing a banking revolution at the present time, it also has a slimmed down management team and the scope to benefit from improved investor sentiment as its turnaround plan begins to be put in place. Of course, its forecasts remain very encouraging, with 15% growth in earnings expected after what is set to be a tough 2015. And, with Standard Chartered having a PEG ratio of just 0.6, it offers tremendous value for money and, alongside Whitbread, appears to be a better buy than Enterprise Inns.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of Standard Chartered. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

1 key stock market indicator to watch this week

The US Index of Consumer Sentiment is a key leading stock market indicator. And UK investors might want to pay…

Read more »

Edinburgh Cityscape with fireworks over The Castle and Balmoral Clock Tower
Investing Articles

I’m on the hunt for cheap shares to buy this January! Here’s one I found

Christopher Ruane has been looking at the UK stock market to try and find shares to buy for his portfolio.…

Read more »

Investing Articles

4 SIPP mistakes I’m avoiding like the plague!

Christopher Ruane explains four errors he is trying hard to avoid in investing his SIPP, as he tries to maximise…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

Up 28% in a month, I’ve been loading up on this penny share  

Our writer has been buying more of a penny share he already holds and reckons recent news could point to…

Read more »

Investing Articles

How to aim for a reliable 6% dividend yield when picking stocks

Mark Hartley outlines his strategy to identify top-quality stocks with high dividend yields and strong fundamentals for consistent income.

Read more »

Investing Articles

Investing £20,000 in this FTSE 250 stock today could net investors £1,944 in passive income this year

After falling 11% in a week, this FTSE 250 company is set to return almost 10% of the its market…

Read more »

Investing Articles

I asked ChatGPT to name the best S&P 500 growth stock and it picked this AI powerhouse

Muhammad Cheema asked ChatGPT to pick its top S&P 500 growth stock. He was disappointed with its response, which missed…

Read more »

Investing Articles

£10k in savings? Here’s how an investor could use that to target £420 of passive income a month

Harvey Jones shows how it’s possible to build a high and rising passive income from a portfolio of FTSE 100…

Read more »