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ShareProphets Share Tips of the year 2017: No 1 Buy Whitbread says Chris Bailey

By Chris Bailey | Friday 23 December 2016

Disclosure: I own shares in one or more of the stocks mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

If you want to buy just one new single stock in the FTSE-100 for 2017 you need to look at the perceived Brexit losers given, over the course of the next 12 months, Brexit apocalypse will move further away via delays and position dilution.  Forget big overseas earners as this backdrop will crimp their translated back into Sterling earnings so it has to be more domestic plays.  And filtering for market leadership, strong balance sheet and continued growth hopes I end up with Whitbread (WTB) the owner of the Costa Coffee and Premier Inn franchises. 

The stock has lagged in 2016 on fears that the referendum result would lead to embattled UK consumers cutting back on their coffees and mini breaks as recession loomed.  Of course the reality has been more benign than this.  The average Briton still wants their voluminous shop coffee and Costa remains the whole-of-market preferred choice, continuing to grow their market share leadership at cheaper pricing points than American or Italian inspired alternatives.  Growth in 2017 will come both from ‘mix’ – when did you last just buy a coffee at Costa? – and growth in both petrol station franchises as well as in places like China where coffee consumption has only recently passed its embryonic phase.

Premier Inn continues to smack the opposition out of the park in the more affordable hotel category as measured my customer satisfaction and willingness to return.  Recent numbers have focused on the contrast between patchy growth in London and continuing solid progress elsewhere in the UK.  However looking at the numbers in London in closer detail disruptions from room extensions have had an impact above and beyond the natural ebb and flow in tourism numbers due to geopolitical headlines and the like.  Ultimately versus peers who are struggling to keep up in terms of continuing investment to keep the product fresh and attractive, Premier Inn will be just fine and I don’t see too much crossover with upstarts like Airbnb.  And Whitbread have barely started on opportunities in Europe where family run bed and breakfasts – and their 1970s wallpaper - dominate. 

A final speculative comment.  Whitbread owns a decent amount of freehold property unlike most other hotel names.  It played down at a recent capital markets day going ‘capital lite’ but this and the spinning off of Costa Coffee akin to the multiple that Starbucks (US:SBUX) trades at are both likely extra value creation exercises for some time in the future. 

So between downing your latest latte and booking a city break somewhere nice it is also time to buy a few Whitbread shares.  I believe you will get rewarded in 2017.  There’s even a little bit of yield to play with too.  

Chris Bailey edits Financial Orbit and will be hosting the Gold Session at UK Investor Show

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