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“A tough day on the markets put the FTSE 100 at a seven-month low of 6,991 in early trading on Tuesday. Markets flashed red across Europe and Asia amid geopolitical tensions focused on Saudi Arabia, plus a falling oil price, Italy’s budget issues and ongoing Brexit concerns among many other issues. “Only 16 stocks in the FTSE 100 were in positive territory in the first hour’s trading, led by precious metals miner Fresnillo and cigarette maker British American Tobacco,” says Russ Mould, Investment Director at AJ Bell.
Whitbread
“With the sale of Costa approved by shareholders, the focus for Whitbread is now on its Premier Inn hotels. It is likely that management will spend more time on making efficiency improvements, overseas expansion opportunities, plus driving innovation to help the brand stand out from the crowd.
“We’ve already seeing some progress with the test launch of a new format called ‘Zip’. Whitbread is also replacing legacy customer reservation and inventory management systems in Premier Inn, as well as integrating new hotels in Germany onto its latest platform.
“There is arguably a lot Whitbread can do to improve its business and it certainly needs to find extra ways of making money given the flagged inflationary pressures, plus ongoing investment requirements.
“The business is being quite open about near-term profit growth being likely to be lower than in previous years, so hopefully shareholders will be understanding with regards to spending money now to make more money in the future.
“Clearly the promise of giving shareholders some cash back, potentially via special dividends once the Costa sale completes, will keep them happy for now. It also provides a window of opportunity for Whitbread’s management to firm up Premier Inn’s future plans without shareholders being too itchy about the pace of progress.
“The bigger question longer term is whether the UK really needs so many more hotels. The industry continues to build and build, plus there is the additional factor of Airbnb offering plentiful supply of accommodation.
“As such, one suspects that Germany is going to become a much bigger focus for Whitbread in the future, in its view the country’s hotel market is similar to the UK a decade ago and is experiencing a structural shift from independent hotels to branded hotels – particularly budget ones.”
Intu Properties
“Today’s trading update from shopping centre landlord Intu Properties makes for interesting reading, particularly in the context of its current takeover situation.
“Although a firm bid is yet to materialise, 215p is the mooted offer price by a Peel Group-led consortium. Intu’s net asset value has been downgraded by 5% from the half year stage after a 3% decline in property values. That may not be a severe as some investors had expected.
“The company also managed to push through some rent increases and this looks like a reasonably resilient performance given the pressures on the retail sector.
“As such it may lead shareholders to question the generosity of a proposed offer which, adjusted for dividends, comes in at just 210.4p.
“On the other hand, Intu’s high levels of indebtedness, with the loan-to-value ratio increasing from 48.7% in June to 50.6%, could make life as a standalone entity challenging for Intu. “Peel, and its partners in Canada’s Brookfield and Saudi Arabia’s Olayan, have until 1 November to make an official approach or walk away.”
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