Broker snap: Citi downgrades Whitbread on limited upside

24th Jan 2014 10:34

Citigroup has lowered its recommendation for Whitbread from 'buy' to 'neutral', saying that the valuation of the hotel and leisure stock is approaching peak multiples.Following a 25% rally since October after "strong results, a positive investor day and further confirmatory trading data", the bank said that stock now looks "fully valued".Nevertheless, Citi has raised its forecasts for Whitbread's hotel revenue per available room (RevPAR) growth for the years ending February 28th 2014 and 2015 to 5% (from 4% and 3.5%, respectively) owing to its growing optimism about the UK economy.As for the Costa division, Citi sees "long-term potential" with system sales expected to double between 2013 and 2018. However, it is now more cautious on margins with management expected to "invest more aggressively behind top-line growth"."We like Whitbread's near-term growth profile and exposure to a UK recovery but the valuation, which is now approaching peak, is up with events," Citi said."UK economic exposure has been a key driver for the stock but we think this is well understood by investors and the upside is limited."Despite the downgrade, the bank has raised its target price for the stock from 4,000p to 4,280p.The share price was down 1.8% at 3,838p by 10:55 on Friday.BC