Costa Coffee and Premier Inn owner warns of Brexit headwinds sending shares sliding

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The owner of Premier Inn hotels and Costa Coffee posted a robust set of annual results on Tuesday, but warned of the ongoing risks relating to Britain’s decision to quit the European Union, which sent shares sliding.

Whitbread said full-year underlying pre-tax profit increased by 6.2 per cent to £565m in the year ended 3 March, largely spurred by double-digit sales growth at Costa. Revenue increased by 8.2 per cent to £3.1bn.

But the company, which owns the Beefeater chain and Brewers Fayre brand of pubs, also said that it will continue to monitor the “risk of a wider macro-economic effect as a result of the UK leaving the EU, including foreign exchange and interest rate fluctuations”.

Shares were trading around 6 per cent lower by late morning, trailing all other names on the FTSE 100.

The latest figures published at the end of March indicate that inflation across the UK jumped to 2.3 per cent in February, overshooting the Bank of England’s 2 per cent target for the first time since November 2013, largely as a result of the dramatic slump in the pound since June’s referendum.

Separate data earlier this month showed that UK food prices saw their biggest annual increase in three years in March.

Wages in the three months to February rose at an annual rate of 2.3 per cent, the same as inflation, something that might make people less likely to spend on things like coffee and accommodation.

Earlier in April, Starbucks said that pre-tax profits in the UK slumped nearly 61 per cent from £34.2m to £13.4m in the year to 2 October 2016

Its turnover declined from £405.6m to £379.9m during the period, with the world’s biggest coffee chain citing “persistent economic and geopolitical headwinds including slowing economic growth, the impact of Brexit and ongoing security concerns affecting customers”.

Neil Wilson, an analyst at ETX Capital, said that although Whitbread “remains highly cash-generative”, it is struggling to adapt to changing consumer trends in its two key businesses of hotels and coffee.

He also said that smaller, independent coffee shops are rivalling the better established chains, potentially “denting growth prospects at Costa”.

Separately, the rise of companies like Airbnb is “crimping growth at the Premier Inns hotel chain,” he said.

But Mark Irvine-Fortescue, an analyst at Panmure Gordon & Co, labelled the results reassuring.

“Management is [confident] in delivering another year of good progress in [the full year ending in 2018], in line with overall expectations,” he said.

He reiterated his hold recommendation for the stock, and a price target of £38, compared to its price on Tuesday of around £40.35.