Here’s my quick take on four companies that reported their trading updates today.
Whitbread: A Long-Term Play
Its interim management statement for the 13 weeks to 28 May showed why Whitbread (LSE: WTB) deserves plenty of attention: like-for-like sales growth at Premier Inn and Costa stands at 6.3% and 5%, respectively.
Moreover, Whitbread plans to open around “5,500 new Premier Inn UK rooms and around 250 net new Costa stores worldwide“.
“Our committed UK pipeline has grown to 13,339 rooms and construction is underway on 42 new hotel sites as well as 19 hotel extensions,” it added.
The stock’s performance is broadly in line with that of the FTSE 100 at the time of writing, and that’s because investors want even more growth from this stock market darling — but at 21x forward earnings, WTB remains a buy, in my view. If it keeps up with this growth rate, revenues will have grown at a compound annual growth rate of 14.4% between 2013 and 2016 — and there’s more to come.
WTB remains a long-term value play.
Ashtead Group: Focus Is On Cash Flows
Ashtead (LSE: AHT) is doing well both in the US and in Britain, its annual results showed today. So, why is AHT down 2.6% today at the time of writing, and 4% year to date?
It looks like analysts are less upbeat about its growth prospects at 1,100 a share, where it currently trades. Barclays, for instance, decided to cut its price target to 1,375p today, which implies a rather high forward price-to-earnings ratio of about 20x.
Certainly, the yield it offers isn’t particularly appealing, but its growth rate is outstanding. Fundamentals are solid, while net leverage is under control. If anything, additional cash returns to shareholders should be ruled out at least until its core cash flow profile improves.
That said, I’d hold onto AHT if I were invested.
Keep An Eye On Consort Medical (£455m market cap) & Servoca (£28m market cap)
These are two smaller business that investors should keep on the radar, in my opinion.
Consort Medical‘s (LSE: CSRT) results were a mixed bag, but there’s a lot to like in the way management is pushing ahead with an aggressive capital allocation strategy that may eventually allow its stock to beat its previous records over the next 24 months.
“Unchanged final dividend of 11.68p per share; total full year dividend unchanged at 18.11p,” was one element I did not like in its release, but was in line with expectations. A closing net debt position of £99.2m (FY2014: net cash £25.8m), which implies net leverage of 2.3x (“comfortably within the banking facility covenant”) signals efficiency, at least financially, however.
On average, its shares have risen at a 40% clip over the last five years: they do not trade in bargain territory, based on cash flow multiples, but they are not expensive, either.
Elsewhere, Servoca (LSE: SVCA) is up 30% this year. Volumes are thin, which heightens the risk of the investment, of course. I am fairly relaxed about that, and I’d focus on the unaudited interim results (for the six months ended 31 March 2015) of this specialist outsourcing and recruitment solutions provider, which showed today a strong rate of growth for revenues and earnings as well as declining net debt. All good here.
This is a business at a growth stage, operating in a very promising sector and with a clear focus (healthcare, education) on operations. Its lofty valuation could drop fast if management continues to deliver, drawing the attention of bigger recruitment agencies in the UK, where consolidation is likely to speed up sooner rather than later.
