Conviviality warns it is set to go into administration: Conviviality is to appoint administrators in the wake of its failure to raise £125m in fresh capital. The company stated: “Further to the announcement on 28 March 2018, and following discussions with its lending banks, the board has resolved to file notice of intention to appoint administrators to the company. Unless circumstances change, and in accordance with statutory requirements, the board intend to appoint administrators within ten business days. The secured creditors can, however, appoint administrators without the requirement for notice. The directors intend to allow the business to continue to trade and the company continues to work alongside advisers in order to preserve as much value as possible for all stakeholders as it explores a number of inbound enquiries regarding a potential sale of all or parts of the business.” Last night, Conviviality warned shareholders in the company would receive “little-to-nil value”. The company stated last night: “On 21 March 2018, the company provided an update to the market on the actions the board were undertaking to resolve the company’s funding requirements. A key element to this was an equity placing to raise gross proceeds of £125m, which the directors believe is the minimum amount required to adequately recapitalise the business. Despite a significant number of meetings with potential investors resulting in good levels of demand, and constructive discussions with a number of key customers and suppliers regarding the provision of support, there was ultimately insufficient demand to raise the full £125m. The board wishes to thank its customers, suppliers and employees for their continued support during this difficult period for the company. The company is in discussions with its lending banks and advisors regarding other possible options and is in receipt of a number of inbound enquiries regarding a potential sale of all or parts the business. A further update will be made as appropriate. The board believes shareholders in the company will receive little-to-nil value.”

Jamie Rollo – Germany offer Whitbread attractive growth prospects: Morgan Stanley leisure analyst Jami Rollo has argued that the German market offers Whitbread’s Prmier Inn brand attractive growth prospects. He said: “Germany is an exciting hotel opportunity. Compared to Whitbread’s domestic UK hotel market, Germany has a relatively low branded share (30% of rooms vs 49%), a low top ten brand concentration (9% versus 27%), and an even lower branded budget share (5% versus 23%). It is Europe’s second largest hotel market, and has experienced close to zero net supply growth over the last five years. Whitbread’s decision to expand Premier Inn there appears therefore entirely logical, adding another dimension to a UK business facing saturation at some point. It would also make the Hotel division more attractive if Costa Coffee were at some point separated. Whitbread’s recent acquisition of 19 hotels in Germany from Foremost will double its footprint here to ~6k rooms by FY21, when the deal completes and its pipeline has opened. This will make Premier Inn the 5th largest budget brand in Germany, a strong performance from zero presence in just five years, and it should move Whitbread’s loss-making international hotel business into profit. Adding, say, 1k new rooms organically in Germany would lead to ~20% annual Ebit growth, enhancing Premier Inn UK’s Ebit growth rate of ~5% by ~60bps. However, initial returns look poor, and the Ebit contribution is not material . Whitbread has not revealed financials for the Foremost acquisition, but we estimate a £250m all-in consideration, and a low ~2.7% post-tax ROCE in the first full year of operation excluding the rebranding hit. We also estimate PI will make a low 3% ROCE on its existing pipeline (£330m invested by FY21e), as its landbank builds up. Its German returns of ~3% are far short of the 11% we forecast in the UK. This suggests ~£600m total investment in Germany by FY21, which is 8% of Whitbread’s EV, but only 4% of its Hotel Ebit, which is perhaps the price to pay for getting into the market rapidly. Whitbread needs either significant time or capital. We model what investors need to believe in order for Germany to make a difference. If Germany needs to represent, say, 20% of UK Hotel Ebit, this implies ~40k rooms there, a 4% market share of rooms, so plausible vs its UK share of 9% (70k rooms). We estimate this would either take time (25 years if expansion is organic and assuming 1.5k annual new rooms, in-line with fast-growing B&B Hotels and Motel One), or significantly more investment (a c. £2bn acquisition assuming a generous 8% post-tax ROCE). Essentially, the leasehold nature of the German hotel market (£3k Ebit/room vs £6k/room in the more freehold UK), and Premier Inn’s structural advantages in the UK (earlier start in the 1980s, legacy assets from its pub business, significant network effect), mean Germany looks unlikely ever to be material for Whitbread in its current form. We value Germany at up to 200p per share. Meanwhile, the UK is tough and we trim forecasts and our PT. Slowing hotel RevPAR, restaurant like-for-likes and high street trading mean we trim our 4Q18 revenue assumptions (to -0.3% like-for-like sales, the weakest since 2009), offset by efficiencies, and cut FY19 EPS 1%. We are below consensus and think consensus forecasts will come down at the FY18 results in April. Our price target falls 100p to £42 for this downgrade and the expensive German acquisition. Whitbread shares look cheap versus peers, and ongoing activist speculation could support the stock, but its like-for-like sales are underperforming, the outlook is deteriorating, and we don’t sense sufficient internal or external pressure for changing the current group structure.”