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Should I Put Rolls-Royce Holdings PLC, Whitbread plc Or Tasty Plc In My ISA?

The deadline for filling up 2015/16’s ISA allowance is fast approaching, and with it comes the perennial conundrum, “what do I put in it?”

If you’re looking for last minute ideas or want to plan for your 2016/17 allowance, let me throw three serious contenders for my own portfolio into the pot for you to chew over.

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Down but not out

Iconic brand owner Rolls-Royce (LSE: RR) is trading through a troublesome patch. Earnings were flat during 2014, down 10% in 2015 and look set to tumble almost 60% this year. The share price followed events and, at today’s 691p, sits almost 50% below the peak it achieved at the start of 2014. With the recent full-year results, came news that the directors trimmed the dividend. Ouch! That’s not the dependable performance we tend to expect from one of Britain’s greatest companies.

The Aerospace and Marine engine manufacture’s chief executive expects 2016 to be difficult as the firm “start(s) to transition products and sustain investment in Civil Aerospace and tackle weak offshore markets in Marine.”

Rolls-Royce is something of a recovery play, with the company insisting that the long-term outlook is good. The firm points to a healthy and growing order book, and to its restructuring program, as evidence that a simplified operating structure has potential to deliver decent profit growth down the road.

Judging by the firm’s forward price-to-earnings (P/E) ratio of around 27 for 2016, investors are ‘buying’ the story here. I’m a little more cautious. Rolls-Royce operates in an industry with a fair amount of cyclicality, and it carries chunky pension obligations.

A growth story within

Ex-brewer and pub operator Whitbread (LSE: WTB), which now specialises in hospitality, has a gem within its operations in the form of Britain’s well-loved coffee brand Costa. The growth of the brand continues to be impressive with the firm updating the market at the beginning of March to reveal a 50-week performance of 10.5% total sales growth and like-for-like sales growth of 0.5%, despite lower caffeine-seeking footfall on the high street due to an unusually warm winter. 

Costa keeps me interested in Whitbread. The firm’s other operations, such as Premier Inn and various restaurant brands, are more cyclical, but there is a strong commitment to continue to grow them, too.

At 3,971p, the firm’s shares are off around 27% from the heights achieved last year, although operationally, Whitbread is still firing on all cylinders. The valuation seems more attractive than it has been for a while with a forward P/E rating of just under 16 for year to February 2017.

Accelerating growth

Tasty (LSE: TAST) released its full-year results today, confirming that the firm’s restaurant business is a rollout that’s rolling. Revenues are up 20% for the year, adjusted operating profit up 28% and profit before tax up 20%.

The most encouraging news is that the speed of growth is accelerating. 2015 saw the firm open 13 new locations taking the estate of Wildwood and DimT branded restaurants to 48 by trading year-end, a 37% uplift over 2014.  Two more restaurants opened already since the end of December, and Tasty is targeting 15 new sites altogether for 2016. Just a couple of years ago, we measured annual expansion of new sites in single digits.

One of the great strengths of an investment in Tasty is the firm’s experienced management team. The directors are not cutting their teeth on this rollout — they’ve done it all before, and very successfully.

At today’s 163p share price, Tasty’s historic P/E rating for 2015 is 35, but if growth continues to accelerate, profitably, forward multiples will drop down fast too. That’s why Tasty is my preferred choice for an ISA top-up, followed by Whitbread and then, cautiously, Rolls-Royce Holdings.

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Kevin Godbold owns shares in Tasty plc. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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