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Whitbread Shares May Froth Despite the National Living Wage

By Malcolm Stacey | Wednesday 11 January 2017

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

Hello Share Cravers. Whitbread (WTB) is a name which still conjures up old-fashioned pubs and breweries. Not necessarily a great business to be in that, as pubs seem to close down all over the shop.

But Whitbread is now big in hotels and this seems to be a thriving industry. I’m never sure why so many people need to be away from home so often, but it’s a fact. 

Now Whitbread should be worried about the National Living Wage as it has so many workers. And we all know that most employees in the hospitality trade are not well paid. So there will be a big spend is on the horizon as the new living wage legislation kicks in.

However, the company has been on a big cost-cutting drive which will mitigate the cost of the change.

The low pound is also pulling in foreigners and they obviously need somewhere to stay. Remember that Whitbread runs the Premier Inn chain, which people seem to like.

From a brewery set up in the 1742, Whitbread has had time to grow into a huge outfit doing hotels, restaurants and leisure clubs. Other brands include Brewers Fayre and Beefeater, not to mention Costa, the bustling coffee shop which is springing up all over the place.

Yes, the business relies on people having spare money to spend. And if things get really tough in Britain, the first thing people will ditch is eating out and staying over. So you take that risk investing here. But with GDP on the rise, do you really see that happening?

The reassuring fact is that this is a well-run business with loads of experience. And though the P/E ratio is 18.7 which seems a bit toppy, the share is still cheap compared to other hospitality giants.

The Punter’s Return however, is not a hospitality giant.

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