The Investment Column: Boring old Whitbread

With the pub sector suffering a hangover, Whitbread's predictably boring results were a tonic. The big brewers have been out of favour recently following warnings from both Greenalls and Wolverhampton & Dudley. The fear was that with the huge sums being poured into developing managed pubs, returns would suffer. Whitbread's share price was dragged down too with the shares tumbling from 850p in July to less than 700p a week or two ago. But they have been recovering recently. Yesterday's half-year results served to further reassure that the company is on track.

Underlying pre-tax profits in the half year to August rose 12 per cent to pounds 198m. The figures pushed the shares 11p higher to 801p. Though Whitbread hinted yesterday that it may expand some of its hotel and leisure brands on the Continent, what the market really wants to see are improvements on the return on its existing portfolio. This has been expanded significantly in the last few years by buying David Lloyd Leisure, Pelican restaurants and Marriott Hotels.

Encouragingly, Whitbread pointed out that it has invested pounds 440m in new pub and restaurant openings in the last three years and that the annualised return on capital in 1997/98 was expected to be 16 per cent.

In beer, Whitbread has bucked the trend, improving volumes by 2.4 per cent in a market down 0.8 per cent. In sectors such as take-home, brands like Stella Artois have increased sales by 28 per cent.

If there is a potential problem in the Whitbread portfolio it may be Cafe Rouge. Though it is being expanded successfully outside London, like-for-like growth is just 1 per cent and the central London outlets are suffering from increasing competition.

But with the hotels business storming away with strong rises in occupancy and yields, it is hard to find much to grumble about. On SBC Warburg's full-year forecasts of pounds 348m, the shares trade on a prospective multiple of less than 15. That is a discount to the market and as a defensive stock looks a safe haven in these volatile markets. Hold.