The Week In Review: No holiday on the horizon for hotel investors

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The Independent Online

The dearth of business travellers, who have had their corporate travel budgets cut amid economic woes, has been a major headache for the hotel industry for the past four years.

The dearth of business travellers, who have had their corporate travel budgets cut amid economic woes, has been a major headache for the hotel industry for the past four years.

De Vere, a luxury hotels, leisure clubs and drinks business, said this week that corporate and conference bookings had picked up, as it announced flat six-month profits. Some 60 per cent of its business is from the corporate sector, so this is a great relief, but the bad news is with the leisure traveller. They are now the ones staying at home, and De Vere's experience mirrors that being seen in retail businesses on the high street, as well as in pubs, restaurants and gyms.

Shareholders have reason to be pleased with De Vere thus far, however. It returned £183m from the sale of the Belfry hotel and retained the contract to manage the hotel. Management contracts are the business model for new De Vere hotels, as this does not require capital up front to pay for building or buying expensive properties.

The group is also growing its Village-branded hotel developments, which include a hotel, pub, restaurant, coffee bar, banqueting facilities and giant health club. But with this type of leisure spend falling, De Vere's expansion could feel the brunt of the slowdown. There are also concerns over its stand-alone fitness club chain Greens. It is difficult not to imagine the consumer slowdown biting here too.

Its drinks business, G&J Greenall, also reported tighter margins yesterday. Corporate travel may be strengthening, but with these other factors, the management's target for 10 per cent return on capital by 2007 looks a pretty tall order. Even if it were to achieve it, other areas of the hotel sector produce far higher returns. Check in elsewhere for shares.

MAYBORN

Mayborn has a record of growth within its baby products division, which makes feeding bottles, cups and other baby products. This market is growing at 5 per cent a year. It also benefits from its children's outdoor play equipment business, which it acquired last year and from which it should gain from growing consumer concern over inactive children. The household division remains the area of concern. This activity is basically mature although at least it remains profitable and requires little investment. Buy.

NUMIS

Formed five years ago, Numis is steadily carving out its niche as a broker to small and medium-sized companies. As the big investment banks have withdrawn from the sector in recent years, Numis has been one of the most successful smaller players to fill the gap. It has also picked up some heavy hitters to join its research and investment banking services team. The second half will be tougher with equity markets volatile, but the company should be able to get through well. Buy.

PEARSON

Pearson really cannot afford any more hiccups, so it was a relief for investors in the publishing group that the recent trading update contained no new bad news. The three parts of the group ought to do much better in 2005, led by educational publishing, though Penguin remains a concern and the Financial Times is hoping only to break even - after three years of losses. Hold.

NORTHGATE INFORMATION SOLUTIONS

Northgate Information Solutions is the UK's biggest supplier of payroll and related software to personnel departments. Its shares have been stuck in a narrow trading range for the past 18 months but could be due to break out. A trading update said that all was well, ahead of full-year results. Northgate's personnel software has a strong position among large and small companies with local authorities and police forces. Buy.

ALLIANCE & LEICESTER

Despite this week's upbeat trading update from Alliance & Leicester, this year could be a tough one for the mortgage bank. Things are bound to get even tougher for the Leicester-based group as the housing market continues to cool and the consumer debt-fuelled spending boom has come to an end. Revenue growth at A&L has also been held back by its insistence on good quality lending, which has made it harder for the bank to increase income as fast as its rivals. They have been happier to get involved at the bottom end. Sell.

CATTLES

Shareholders in Cattles, the specialist consumer loans company, will have been disappointed in recent weeks, as the its share price has tumbled more than 25 per cent. The trigger has been a combination of two factors - a shift to new international accounting standards, which has wiped around £40m off its headline pre-tax profit figure, and market fears over an ongoing consumer spending slowdown. But neither of these reasons are disastrous. The fall in Cattles' shares has produced a buying opportunity.

Mirror reflects on ads revenue slide

In a trading update Trinity Mirror, the national and regional newspaper publisher, said that, after a positive start to the year, in January and February, March and April saw a dip.

The company pointed to a series of ills affecting the market place: the general election, rising interest rates (fear of) and property price uncertainty. It also blamed the timing of Easter, which was early this year.

The problem area remains the national newspapers, especially the UK nationals. These UK titles - the Daily Mirror, Sunday Mirror and The People - saw advertising revenue down 7 per cent in March and April, from a marginally positive January and February. The Scottish nationals - the Daily Record and the Sunday Mail - saw ad sales down 3 per cent in March and April. Trinity Mirror insists that the difficulty is industry-wide and not related to its business in particular.

Overall, for the year so far, the national papers as a whole saw ad sales down 2.4 per cent, while its huge stable of regional papers saw a gain of 4.0 per cent. For circulation revenues, the nationals were up 1.6 per cent and the regionals 4.8 per cent higher.

Sly Bailey, the chief executive, has made Trinity Mirror a much more efficient and more professionally managed business. She has also pleased City investors with a £250m share buyback programme.

However, the company is struggling to produce a convincing growth story, leaving the impression that it is being run for cash. Hold.

cash@independent.co.uk

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