Jim Armitage: Costa Coffee will taste sweeter to the City on its own

Believe Whitbread and today’s decision to do the splits was one entirely of its own making, years in the planning.

Nothing to do with the activist investors demanding it do just this a few months back. Nothing to do with the way the share price shot up when the agitators stated their views. Nothing to do with the arrival of a new chairman in Adam Crozier last month to cast fresh eyes on the business.

Pull the other one. Whitbread may have considered the idea, but it was the activists who got them over the line. Anyway, now the board has bowed to the inevitable, the question remains: is this the right solution?

To which the response has to be “yes”. Both sides of Whitbread have been dragged below their potential value by being shackled to each other. Before the activists arrived, Whitbread was valued at a lowly 9.5 times its forecast underlying profit (known as Ebitda).

By some measures, that made Premier Inns the second-cheapest hotelier in the world, despite its resilience to economic downturns, great quality hotels and new growth prospects in Germany.

It made Costa — a slick, global concern — as cheaply valued by the stock market as Greggs the bakers. That’s an absurdity in anyone’s book, given that Starbucks trades at 14 times Ebitda.

As separate entities, once new investors wanting to invest solely in hotels or coffee bars arrive, you can see the valuations settling up at around 11 times earnings for Costa and 13 for Premier Inn. That’s a serious value increase with little risk.

Will Costa suffer from having to set up its own head office infrastructures? Not really; the two sides of the business operate independently, with their own bosses already. Shared back office costs are minimal.

Rather, it will be easier for the two management teams to be more directly incentivised.

Some have suggested Costa may fall prey to a takeover when it becomes a free agent.

I’m not so sure: though it’s possible today’s market excitement could alert private equity firms who’ve been dozing, it seems to me bidders would have been more likely to swoop last year, when the share price was on the floor.

All in all, this is the right move, whoever’s idea it was.

House of Fraser’s bailout a sick joke

Callous though it sounds, the rescue of House of Fraser by new Chinese backers last night is not necessarily a Good Thing.

House of Fraser is the weakest department store chain in the UK, yet it limps on thanks to its mysterious, illogical sino-financiers.

This piles unnecessary competitive pressure on struggling rivals M&S and Debenhams, which have a far better hope of being turned around, albeit with dozens fewer stores than they now have.

Survival of the sickest upsets the natural order of things.