So hello to the first big corporate updates day of 2020. So much I could write about but three names I wanted to share some thoughts on as I have mused on them in recent months. The first has to be Whitbread (WTB), which I have loved up for a few years now and even back in August highlighted as a potential takeover candidate. The latter has not happened – and frankly any investor of even moderate experience has worked out that such calls are almost impossible to predict with any accuracy, but I certainly do not rule it out in the earlier part of the 2020s. A third quarter update - which exhibited a mildly positive overall business like-for-like gain - did see a small contraction in the core UK Premier Inn business due to the (you guessed it) uncertain political/consumer backdrop. Prospectively it is a bit more optimistic – and so it should be. Germany (as I have talked about before) remains a grand structural opportunity and continued to grow in the most recent numbers. Additionally, the core brand profile of the business remains strong and highly regarded by customers. As it happens, I am currently on a small business trip and - you have guessed it - am staying at one of Whitbread's finest. I knew what to expect in terms of the room and facilities, the food options (another growth part of the numbers) are suitably mainstream and solid value-for-money and the overall experience is hassle-free. Remains a core hold/buy for me and I would buy more at/around the £40 level, anticipating the scope for a '5' in front of the share price.
Second is Wood Group (WG.), which I have probably been a bit too optimistic about as shown back last summer. The shares are up 6% odd as I write and the update has a little bit for everyone. Naturally, there was a bit of pessimism about the propensity of the big oil and gas names to pucker up the capex spend which is the core bread and butter business for a company such as this but - even with approximately flat revenues in FY19 year-on-year - costs are being nibbled down, disposals of non-core businesses are ongoing and the balance sheet is edging slightly better (and is in broadly good order). This is more than a survivor but offers operational leverage (hence the shifting about between a three and a nine quid share price over the last couple of years) into any improvement. Despite unsurprisingly big static multiples and some recent writedown scrapes, I would still be a buyer and - for the second time in this article - anticipate the scope for a '5' in front of the share price.
Finally, Halfords (HFD), where the shares have got the horn and pushed back above the 150p level. Yes, I was rude about the company back in September but that was at an overtly higher share price than even now post the bounce. I have to say the company has surprised me with a set of predominately positive quarterly year-on-year metrics which contrasted with the contractions seen over the last couple of reports. Naturally, this makes you wonder about the power and influence of easy comparisons. However, we may at least have reached some form of natural equilibrium. There was nothing overt about the dividend or the balance sheet given the sales-focused nature of the update, however I was quite impressed by the progress - and implied customer affinity - exhibited by key divisions including cycling and the autocentres. Certainly the profit forecast - which was cut so overtly in the middle of last year - is being maintained. A single digit earnings multiple with a whacking yield and (judging by historic numbers) a good balance sheet? Even in a nuanced consumer backdrop, this might work. Time for a tweaking of the weekend plans to allow time for a site visit...I am sure the family will not mind!
Filed under: Whitbread, Wood Group, Halfords, Versarien, Character Group, Plutus Powergen, GVC
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