Simon French – Whitbread should demerge Costa Coffee: Cenkos Leisure analyst Simon French has argued for Whitbread to demerge its Costa Coffee business as he initiates coverage with a buy recommendation. He said: “Whitbread’s core businesses retain substantial growth potential. As Costa’s international division returns to profitability we think the likelihood of a demerger will increase. At the same time the launch of hub by Premier Inn should provide additional long-term growth opportunities in Whitbread Hotels & Restaurants (WHR). We believe near-term consensus estimates are cautious and subject to normalised trading conditions over the next three months we expect the group to outperform against FY 2015E market expectations. Whitbread trades on a CY 2015E EV/Ebitda of 11.8x or a P/E of 19.5x. Our “sum of the parts” analysis suggests a fair value of circa £53 per share and we therefore initiate coverage with a Buy recommendation. Premier Inn’s aggressive yield management in London has driven earnings growth but also left a gap in the market behind it. The group has taken steps to fill this with the launch of hub by Premier Inn, a smaller-room, city centre concept which will enable it to increase penetration in the UK market. We also think hub is a more suitable concept for international expansion in the Far East. Regionally Premier Inn retains significant pricing growth with room rates c40% below comparable brands. Costa continues to win share in the UK market, with consistent volume increases over the past 36 months. The branded coffee shop market is forecast to grow 10% compound to 2020 underpinning medium-term growth potential. However, the more significant growth opportunity is internationally with Poland and India exhibiting signs of turnaround and China approaching critical mass whilst operations in France have started encouragingly. As international operations return to profitability we believe Costa should be demerged so as to enable the business to maximise its potential. With no obvious direct competitor, we use sum of the parts analysis to value Whitbread. This indicates circa £53/share of fair value. Even allowing for the pension deficit suggests >£51/share. The group offers circa 15% CAGR in EPS, rising ROCE and has good near-term forecast upgrade potential, plus the potential longer-term benefits from a hub roll-out and demerger of Costa. We initiate coverage with a buy recommendation.”

St Austell hires Admiral Taverns boss as non-executive director: Cornish regional independent family brewer, St Austell Brewery has appointed Admiral Taverns chief executive Kevin Georgel to its board as non-executive Director from 1st January 2015. Georgel will join the existing non-executive directors, Jonathan Neame, Piers Thompson and Gerard Barnes, led by non-executive Chairman Will Michelmore. Executive board directors are managing director, James Staughton and estate director, Adam Luck. Commenting on the appointment, Will Michelmore said: “We are delighted to welcome Kevin to our board. St Austell Brewery is a hugely successful business and Kevin’s proven talent and wealth of industry experience will provide welcome additional insights and knowledge to our board which will help ensure the company continues to thrive and develop in the decades ahead.” Kevin Georgel said: “Through my career and as a Devon resident, I have long admired and been familiar with St Austell Brewery’s business and have watched them grow as a brewer, pub company, wine merchant and free trade wholesaler. I am excited and honoured to take up this non-executive role on the St Austell Board and am looking forward to getting started.” Georgel will continue in his role as chief executive of Admiral Taverns a role he was promoted into earlier this year having previously been managing director.