Possible early Costa demerger, says analyst

Speculation surrounding the possibility of Costa Coffee demerging from the Whitbread Group is mounting, according to a City analyst.

It comes as the coffee chain announced the appointment of Chris Rogers, the group’s current financial director, as the brand’s new managing director on Tuesday (3 April). He will replace John Derkach, who is due to step down from his position on 1 August to join UK restaurant business Tragus Group as chief executive.

A spokesperson from Deutsche Bank AG, Filiale London, said: “This move is likely to prompt two responses: relief that he is not leaving Whitbread and speculation that Costa is being lined up for demerger. We have written extensively that we see Costa remaining with the group for some time, so shareholders can benefit from the significant growth expected from the plan to double the estate size by 2016E.

“We have an EBITDA forecast of £175m for that year, and if demerger was a near-term option, why is the managing director leaving? We see an early demerger of Costa as potentially limiting the realisable value from the Costa growth plans for investors.”

Speaking of the current MD’s work at Costa, the representative from Deutsche Bank added that Derkach has managed to more than triple sales and quadruple profits.

Ahead of the company’s 2011/12 financial results, to be announced on 26 April, the City analyst said: “At Costa, we are looking for 26% top line growth, and with margins forecast to rise +75 bps, we are focusing on EBITDA of +35%. We estimate EBITDA should reach £97m in the year just ended.”

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