The Week In Review: Bid gives shareholders a Whitbread Christmas

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Shares in pubs and budget hotel group Whitbread have soared on takeover speculation as investors rub their hands at the prospect of a bidding war. US property investor Starwood Capital has acquired a 3 per cent stake in the business and is thought to be preparing a bid of more than £4bn; British private equity firm Apax Partners is expected to counter-bid. Shares have climbed more than 40 per cent since August as rumours swirl around the City.

In the meantime, the streamlined business - following the sale of Whitbread's 50 per cent stake in Pizza Express and 235 less profitable pubs - has been performing well. Sales growth across three of its four divisions - the Costa café chain, David Lloyd Leisure centres and Premier Travel Inn is strong. And at the Brewers Fayre and Beefeater pub restaurants, like-for-like sales may be flat but analysts are expecting improvements next year.

Whitbread makes its return to the FTSE 100 Index on Monday replacing British Energy. With bid speculation set to continue, buy.

SHAFTESBURY

This property group is a proxy for investing in London's success. When the capital does well, so does Shaftesbury. Hence, few were surprised to see a stellar set of annual results from the company this week. It unveiled a 30 per cent rise in the value of its assets to 590p a share, while the amount of income from its portfolio grew 8.3 per cent to £47m. Next year, shareholders look set to receive an added boost as the group is tipped to convert into a low-tax real estate investment trust. Hold.

GKN

If it were not for the booming aerospace sector, GKN would be in a bad way. In a trading statement this week, the engineering group assured the City that this year's profits would meet expectations because strong aerospace demand had offset higher raw material and energy costs and difficult conditions in the automotive sector. The stock trades at just 11 times forward earnings - a discount to both the wider UK stock et and peer Tomkins. Hold.

PATIENTLINE

The losses continue to pile up at Patientline, which provides telephone and internet services to hospital beds. Its results this week showed a widening of pre-tax losses to £9.1m, from £5.4m for the same period last year. This figure includes a £1.6m exceptional charge arising from the closure of the company's underperforming US operations, but even stripping that out, things look dire for Patientline. Its shares should come with a health warning. Avoid them.

LA TASCA

The Spanish restaurant chain La Tasca has performed well in a robust et, benefiting from the eating-out boom sweeping the country. The group operates a chain of 70 restaurants, including 56 La Tasca tapas bars and seven more upet La Viña restaurants. With trading showing signs of improvement and the all-important Christmas period just beginning, we suggest staying put. La Tasca is an obvious target for private equity and should be a good long-term bet.

BYOTROL

At first glance, first-half results from Byotrol look dire. The technology group, which listed on the Alternative Investment et last year, registered a loss of £1m on sales of just £116,000. However, focusing on these figures would be a mistake, because key to this company is the potential for its lead product, also called Byotrol, which addresses a multibillion-pound et. The group has developed a unique disinfectant that works in a fundamentally different way to anything on the et. Worth a punt.

FILTRONIC

Filtronic, the telecoms equipment manufacturer, has sold off its core businesses to focus on technology used to power mobile phones and electronic defence systems. News that Filtronic expects a flat performance from those businesses in the second half of its year due to subdued demand has piled on the pressure for the group. Plus there's the threat of silicon and gallium nitrate-based technologies emerging to squeeze Filtronic's superior, but expensive, gallium arsenide-based technology. Sell.

TELECOM PLUS

Telecom Plus is the only company to successfully develop a multi-product utility and telecoms billing system. One only has to look at Plusnet to gauge the worth of such technology. That telecoms minnow attracted a top-price takeover by BT - not for its 200,000 broadband customers, but for its unique software. Energy company nPower has an option to buy a 29 per cent stake in Telecom Plus that is exercisable in 2009. KBC Peel Hunt estimates this option values the company at over 230p a share even before factoring in growth in 2009. Buy.

CHIME

Lord Bell's PR empire is prospering. Doing the spinning for clients ranging from BAE Systems and Zara Phillips to Alex Goldfarb (friend of murdered Russian spy Alexander Litvinenko) is clearly a good business to be in - even if the last of these projects is pro bono work. In a trading update this week, the company said it expected to see operating profit growth of 20 per cent this year. That means it should produce profits of some £11m. The outlook for next year is also healthy. Hold.

PARTYGAMING

Gaming shares have not been the best bet over the past year after the draconian crackdown on internet gambling in the US plunged the industry into chaos. But in an upbeat trading statement delivered this week, PartyGaming said revenues had stabilised quickly following the crackdown. Also on the plus, the group has signalled consolidation is on the cards - it has been approached by a number of companies keen for a tie-up. Buy.

CATTLES

Cattles makes its money lending to people on lower incomes or to those with poor credit histories, and has been one of the biggest winners of the UK's credit boom. After an excellent 2006, the group expects its full-year results to come in above analyst expectations. Trading at around 14 times next year's forecast earnings, it is on a similar multiple to its rival Provident Financial. It also offers an excellent dividend yield of almost 4 per cent. There is still value to be had from this stock. Buy.

M&C SAATCHI

When M&C Saatchi lost its flagship British Airways account last autumn, the advertising agency seemed headed for serious turbulence. In fact, the high-profile account loss only served to galvanise the company to do better. Chief executive David Kershaw makes a convincing case that small agencies like his can be entrepreneurial and creatively nimble. The shares have done well since the middle of this year. Buy.

The above recommendations are taken from the daily Investment Column

m.jivkov@independent.co.uk

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