By Roland Head, The Motley Fool
Filed under: Investing
LONDON — The past five years have been tough for those in retirement. Portfolio valuations have been hammered and annuity rates have plunged. There’s no sign that things will improve anytime soon, either, as the eurozone and the U.K. economy look set to muddle through at best for some years to come.
A great way of protecting yourself from the downturn, however, is by building your retirement fund with shares of large, well-run companies that should grow their earnings steadily over the coming decades. Over time, such investments ought to result in rising dividends and inflation-beating capital growth.
In this series, I’m tracking down the U.K. large caps that have the potential to beat the FTSE 100 over the long term and support a lower-risk income-generating retirement fund (you can see the companies I’ve covered so far on this page).
Today, I’m going to take a look at Whitbread , the company that runs U.K. hotel and restaurant chains including Costa Coffee, Premier Inn, and Brewers Fayre.
Whitbread vs. FTSE 100
Let’s start with a look at how Whitbread has performed against the FTSE 100 over the past 10 years:
| Total Returns | 2008 | 2009 | 2010 | 2011 | 2012 | 10-Year Trailing Average |
|---|---|---|---|---|---|---|
| Whitbread | (31.9%) | 57.9% | 29.7% | (9.8%) | 59.9% | 24.2% |
| FTSE 100 | (28.3%) | 27.3% | 12.6% | (2.2%) | 10% | 10.2% |
Source: Morningstar. Total return includes both changes to the share price and reinvested dividends. These two ingredients combined are what make it possible for equity portfolios to regularly outperform cash and bonds over the long term.
Whitbread’s 10-year average trailing total return is 2.4 times that of the FTSE 100, highlighting the strong shareholder returns this company has delivered over the past decade.
What’s the score?
To help me pinpoint suitable investments, I like to score companies on key financial metrics that highlight the characteristics I look for in a retirement share. Let’s see how Whitbread shapes up:
| Item | Value |
|---|---|
| Year founded | 1720 |
| Market cap | 4.7 billion pounds |
| Net debt | 525.8 million pounds |
| Dividend Yield | 2.1% |
| 5-Year Average Financials | |
| Operating margin | 17.5% |
| Interest cover | 9.2x |
| EPS growth | 11.1% |
| Dividend growth | 11.1% |
| Dividend cover | 2.8x |
Here’s how I’ve scored Whitbread on each of these criteria:
| Criteria | Comment | Score |
|---|---|---|
| Longevity | One of the U.K.’s oldest companies. | 5/5 |
| Performance vs. FTSE | Very strong. | 5/5 |
| Financial strength | Decent margins moderate debt, although cash flow is tight. | 4/5 |
| EPS growth | Steady and attractive. | 4/5 |
| Dividend growth | Growth in line with earnings. | 4/5 |
| Total: 22/25 | ||
With nearly 300 years of operating history, Whitbread has an ability to evolve and adapt that isn’t really in question, although it’s worth noting that until 2001 it was primarily a brewer and pub operator. The company’s management believes that hotels and restaurants offer superior growth prospects to pubs and beer, and the fact that Whitbread has delivered a 24.2% average annual return over the past 10 years suggests that they may be correct.
In Whitbread’s latest trading statement, it reported another quarter of strong growth, especially for the Costa Coffee and Premier Inn businesses, both of which are expanding aggressively. Globally, Whitbread is on course to open 320 new Costa stores and 1,300 Costa Express units in the 2012/13 financial year, …read more
Source: FULL ARTICLE at DailyFinance