This report is entitled to be read by potential investors and existing shareholders of Whitbread PLC, a leading hospitality company that is listed on London Stock Exchange. This report aims to provide an in-depth analysis of financial performance of Whitbread and also highlight an outlook of the European chain hotel market where Whitbread mainly operates. We focus on equity valuation based on different valuation methods. This will provide an estimated target price of Whitbread PLC. The target price is a fair and unbiased recommendation from an Imperial College analyst who does not hold any share of Whitbread PLC. However, the recommendation should be used for educational information only. The report is divided in five sections: Executive …show more content…
As of financial year 2014, it has 1,755 coffee shops in the UK and 1,106 in 30 other countries. Costa shows a rapid growth in Asia. According to 2014 data, the company announced a 48.2% increase in Costa system sales and 33.1% more in new coffee shops in China and South East Asia. Key Performance - Revenue and EBIT Having quickly recovered from financial crisis, Whitbread has shown and continues to show a strong performance in the hospitality market. The company announced a double-digit growth in sales over the past 5 years. Total revenue and EBIT figures are shown below: Group Portfolio Whitbread operates in two major business lines - hotel & restaurant line and Coffee shop line. Whitbread owns 6 brands in its business portfolio. They are the following: Premier Inn, Beefeater Grill, Brewer Fayre, Table Table, Taybarns, Costa We look the two business lines in more details. Hotel & restaurant line dominants Whitbread's business. Based on company data, the hotel & restaurant segment yields a considerably higher pre-tax operating profit than Costa. However Costa is growing much faster in recent 5 years. In response to customers' welcoming, Costa contributes more to the group's total earnings than before. Revenue distributions by business is shown in Figure …show more content…
(Source: Thomson One) Cost of equity of 8.07%, based on CAPM calculation Cost of debt of 5.07%. We use three-year average (2012: 5.7%; 2013: 4.8%; 2014: 4.7%) (Source: Whitbread.co.uk) Debt-to-Equity Ratio of 24.41%; this ratio is assumed to be constant over years. (Source: Thomson One, Own construction) Tax Rate of 21%. (Source: KPMG’s Corporate and Indirect Tax Rate Survey 2014) Finally, we estimate a WACC rate of 7.27% and apply this discount rate into the DCF valuation calculation in the next part. DCF Valuation Results We use 4-year historical data to project FY2015 to FY2022 future cash flows and apply a discounted rate of 7.27%. Full calculations for discounted cash flows, terminal values, working capital, and capital expenditure under 3 scenarios (base, upside, downside) are shown in Appendix 4, 5, 6 respectively. Final results for DCF methods are shown below: We use weighted average method to reflect the possibility for each scenario. Weights for upside, base, downside is 17%, 66%, and 17% respectively. This implies an estimated enterprise value of £8,901.4 millions, and an estimated share price of £46.9. Sensitivity