High street coffee chain Costa has gone “from strength to strength” in the UK aided by the benefits of being part of a larger company, according to a City analyst.
Wyn Ellis, travel and leisure analyst at Numis Securities, advised consumers to add shares in parent company Whitbread following the firm’s FY15 pre-close update. The current share price sits at 5,085p, while Numis had predicted a target share price of 5,600p by this month.
Ellis said: “Costa goes from strength to strength in the UK and management expects to continue to hold prices. Costa’s LFL growth in FY15 was largely driven by transactions per store – which were up 4.4%.
He told British Baker that the successful brand could be its own entity “in due course”.
He said: “I have always argued that the development of Costa has benefited from the fact that it has a large and virtually sound parent that has allowed it to take more risks in driving growth than it otherwise might have done. We might see it become separate, but not for many years. It is at the early stages of significant overseas expansion and I think that while that expansion is taking place it is probably a good idea to remain part of Whitbread.
“There is a faster rate of expansion overseas but still significant room for growth in the UK.”
Ellis said Costa’s standalone stores offer the highest returns than those undertaken with commercial partners and though we will see both in the coming year, the former is the brand’s growth route of choice. “There are substantial growth opportunities, which it is only just starting to exploit.”
Overall, Whitbread’s update was interpreted by Ellis as “encouraging”, “confident” and not unexpected. He said: “We have made only marginal adjustments to our top-of-the-range profit forecasts, but we would expect some upward movement in consensus forecasts.”