Derek Pain: Marston's makes play for Whitbread territory

Bo Pain, No Gain
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The Independent Online

Two constituents of the no pain, no gain portfolio will soon engage in head-to-head competition. This week's decision by brewer and pub owner Marston's to enter the budget hotel market will bring it into direct confrontation with fellow member Whitbread, which runs the nation's largest collection of value-for-money hotels, Premier Inns.

Marston's is teaming up with Whitbread's arch rival, the Dubai-owned Travelodge chain, to create same-site hotels and pub/restaurants, a formula already beloved by Whitbread. The partners have apparently earmarked £40m for the venture and the first joint operation – with Travelodge running the hotel and Marston's the pub/restaurant – will appear next year at Wincanton, Somerset.

The partners hope to develop around 15 sites in the next few years.

This summer, Marston's raised £176m through a heavily discounted rights issue. It said then it planned to build up to 25 pubs a year. Clearly the Travelodge link is related to this expansion. Jeffrey Harwood, an analyst at Oriel Securities, estimates that the building programme could eventually add £18m to profits.

The brewer rolled out a moderately encouraging trading statement in August, but the portfolio's other booze investment, Pubs'n'Bars, remains under the influence of the more depressed pubs environment. Its style of pub, relying on drink with a modest food input, has found the going particularly tough. Still, chairman Keith Chapman is "hopeful" that the trading climate is improving. Interim loss is £691,000 (against a £128,000 profit) with changes to the estate structure and new supply arrangements contributing to the latest setback.

The heavily indebted chain is still talking to its bankers with Mr Chapman saying they "are showing a great deal of understanding and the utmost co-operation in these difficult times".

In what has been a busy few days for portfolio constituents, Clarity Commerce Solutions, which joined earlier this year at 29.5p, is the latest company to indulge in a private share placing, raising £2.7m. The privileged few subscribers, including venture capital funds which pumped in £1.7m, purchased shares at 40p, compared with a recent high of 50p and 46p just before the placing was revealed.

The company, providing software for the entertainment, hospitality, leisure and retail sectors, accompanied the cash-raising with an upbeat trading statement that mentioned a "positive" outlook and said trading was running in line with expectations.

I have complained often about private placings that leave existing shareholders out in the cold. It is, however, difficult to get too upset with Clarity. Rights issues, which give all shareholders a chance to join in the cash-raising exercise and avoid dilution, are more expensive and take longer than a placing. With such a relatively small sum being pulled in, mainly to reduce debt and strengthen the balance sheet, a full blown rights would have been counter-productive.

Hargreaves Services, covering coal mining, transport and waste disposal, has also been involved in a share placing. But the sales enriched two directors and some senior managers.

Chief executive Gordon Banham sold one million shares and director Kevin Dougan 529,000. The price was 650p.

The shares went to City institutions that, it seems, had been clamouring for more stock. It was Banham's first disposal since he acquired his holding more than five years ago. His stake is now 11.4 per cent.

Another constituent, Patsystems, a supplier of tailored software to various exchanges around the world, has added the newly established Indonesia Commodities and Derivatives Exchange to its list of clients. The shares, however, have yet to perform since their recruitment.

Mears, the social housing and home care group that could claim to be the portfolio's longest-serving constituent, has won the support of stockbroker Brewin Dolphin. Analyst Mark Fleetwood says the shares are a buy and placed a 362p target on them.

He adds: "Mears in our view has unfairly been left behind, but is in excellent shape and is at an exciting stage in its development." His comments helped push the shares above 300p but they have since slipped a few coppers.

Mears joined the portfolio in its early days at 23p. The shares were sold at 71.5p; the price subsequently hit 385p and I recaptured them at 272p. They have since fallen below 200p, but then staged a recovery.

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