Broker snap: Whitbread still a 'sell', says Investec

19th Jun 2012 10:12

In spite of Whitbread's well-received first-quarter results, Investec reiterated its 'sell' rating for the Premier Inn and Costa owner on Tuesday, saying that it retains a bearish long-term outlook on the stock.The broker does highlight that trading in the first three months of the year was "positive" but notes that it was against relatively easy comparatives. First-quarter like-for-like (LFL) sales increased by 4.5% while group sales jumped by 13.9%.Investec says that despite Whitbread's uncertainty over summer trading and tougher comparatives going into the second quarter, it has raised its full-year earnings per share (EPS) forecast by 2.3% from 140.6p to 143.8p reflecting better-than-expected hotels trading. Next year's EPS are now expected to be 161.1p, up 4.8% from the previous estimate of 153.8p. As such, the target price is raised from 1,450p to 1,500p."We feel this fairly reflects the free cash flow (FCF) generation outlook for the group, with our bear case (retain 'sell') supported by our view that Whitbread faces domestic demand constraints in hotels/restaurants into H2 2013E/FY14E and international expansion limitations in hotels," said analyst James Hollins.The broker prefers InterContinental Hotels ('buy' rating and 1,700p target price) due to its strong returns/FCF and global growth opportunities.In contrast, several other brokers maintained a positive view on the stock, saying that the numbers were strong. Deutsche Bank's Geof Collyer said that Costa's LFL sales growth came in twice as fast as the broker was expecting.Numis said that the numbers were very encouraging and thinks that "the business model is looking very robust", while Citigroup said that Whitbread "continues to run well ahead of its peer group".BC