A strong start to the year for Whitbread’s (WTB) Costa coffee shop chain is compensating for softer trading at Premier Inn, sending shares in the £7 billion cap up 3.2% to £41.72.

Total sales at Costa grew 11.5% in the 13 weeks to 2 June, with like-for-like sales up 2.6%, but this was largely driven by its decision to increase prices in January rather than higher volumes.

Sales at high street cafes have been tougher than at retail parks and concessions, although Whitbread insists it still has no unprofitable stores. It is sticking to its target of opening between 230 and 250 new Costa stores worldwide this year.

WHITBREAD - Comparison Line Chart (Rebased to first)

Like-for-like sales at mid-market hotel chain Premier Inn are up 2.1% driven by a substantial hotel extension programme, but the dilution effect of this plus the soft market environment sends RevPAR (revenue per available room) down 0.5%.

‘The London hotel market is clearly slowing but Whitbread maintains that it is outperforming,’ says Langton Capital analyst Jack Brumby.

Shares in Whitbread have slipped 5.6% this year, putting it on a price to earnings valuation of 16.9. Stifel analyst Jeffrey Harwood reckons this rating is undemanding given the group’s strong track record. Stifel’s target price is £43.00, implying 3% upside.

Issue Date: 21 Jun 2016