Shares in Whitbread, the owner of Premier Inn, fell after the completion of its £2bn share buyback on Monday as short-sellers moved in on the stock.

The company sold Costa Coffee last August for £3.9bn and has been steadily returning the proceeds of the sale to shareholders, through a £500m share buyback and £2bn tender offer. 

But its shares fell almost 5 per cent on Monday to what analysts said was a more accurate reflection of Whitbread’s recent performance after it announced that the tender offer had been completed on Friday.

Share buybacks often help to lift a share price because they reduce the amount of stock in circulation, producing a short-term boost to earnings per share. 

Greg Johnson, an analyst at Shore Capital, said the buyback had been supporting the stock. “If you take away the pillar of the capital return,” he said, “the share price will now start to respond to the soft trading environment.” He added that Whitbread’s performance had been “pretty dreadful” in the first half of the year. 

Samuel Pierson, director of securities finance at IHS Markit, agreed that the tender had driven “some of the demand” for shorting the stock.

Hedge funds hold short positions, or bets that the price will fall, on £1.5bn of Whitbread stock — the highest on record for the company. About 17.7 per cent of the stock is out on loan to short sellers, according to data from IHS Markit. 

Richard Buxton, head of UK equities at Merian Global Investment, a top 20 shareholder, said that he was “very comfortable” with Whitbread’s medium-term strategy for Premier Inn. But, he added, that Merian had reduced its holding by about a third in the tender offer because of short-term challenges prompted by Brexit.

He added that some of the share-price reaction might have been related to Elliott Capital Advisors, Whitbread’s activist investor, which on Friday disclosed a reduction in its stake to less than 5 per cent. Elliott successfully pushed for the sale of Costa and has since been promoting a sale and leaseback plan for Whitbread’s largely freehold-owned property portfolio.

“We are not supporters of sales and leasebacks because you can end up in a difficult position in a downturn,” Mr Buxton added.

Premier Inn has already taken a hit to revenues this year as domestic business travel has dropped off in the wake of economic uncertainty around Brexit.

Revenue per available room — the industry’s favoured performance metric — was down 6 per cent in the three months to the end of May compared with an industry-wide decline of 3.4 per cent. Occupancy rates had also declined.

Before the announcement of the tender offer in May, only about 3 per cent of Whitbread stock was on loan to those betting against it. 

Whitbread said in a statement on Monday that about 21 per cent of the company’s ordinary shares were included in the tender offer.

Elliott and Whitbread both declined to comment.

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