The emergence of Elliott Advisors on Whitbread Plc’s shareholder register ratchets up the pressure on the U.K. company to consider splitting its Costa Coffee shops from its Premier Inn hotels.
Whitbread shares surged as much as 8.6 percent in London, the most since September 2009 and more than when a smaller activist fund, Sachem Head, disclosed a stake in December.
Elliott has presented Whitbread management with a plan to split the company via a demerger, the Financial Times reported on Sunday, citing people familiar with the matter. Some analysts have argued for years that such a move would generate increased value for shareholders. Whitbread CEO Alison Brittain said in January the company remains open-minded and committed to reviewing the company’s structure.
Morgan Stanley, Jamie Rollo
(Equal-weight, PT 4,200p)
Activism will now probably become the biggest share price driver for Whitbread, with valuation moving separately from the company’s deteriorating fundamentals. Elliott’s demerger proposal seems “relatively lower risk” compared with a breakup plan that involves selling property assets. “Pressure will grow on Whitbread to support its view that now is not the right time to separate.”
Stifel, Jeffrey Harwood
(Buy, PT 4,300p)
The current subdued outlook for U.K. consumer stocks and recent trading difficulties at Costa means it’s not a given that a demerged Costa would attain a higher rating than Whitbread currently does. “It is possible that Costa could be separated from the rest of the group, particularly if an attractive offer arose for that business.”
Bernstein, Richard Clarke
(Underperform, PT 3,250p)
A reported valuation of GBP3 billion for Costa is “stretched” because it places the asset on 12x Ebitda for the next 12 months, compared with 14x for Starbucks. “We are also more aligned with management’s view that given continued softness on the U.K. high street, the China opportunity is still unproven and there have been a number of recent investments into the brand, that this is not the opportune time to sell Costa.”
Numis, Tim Barrett
(Hold, PT 4,300p)
It’s “entirely logical” that Whitbread’s Costa and Hotels & Restaurants businesses would be split at some point, and the market will probably look through a period of “gently negative earnings momentum” if there’s a realistic potential for a demerger. “The main difficulty is knowing whether Costa could attract a premium from an outright sale.”
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