The Week In Review: No-frills hotels power success of Whitbread
Saturday 15 December 2007
Whitbread has struck gold with its no-frills Premier Inn hotels. Occupancy is at a best-ever 82.7 per cent, fuelled by demand from business travellers. It is now aiming for another 10,000 rooms via new openings and acquisitions. This week's trading update showed impressive growth from Premier, while Whitbread's Costa coffee shops sharpened the taste buds with sales up sharply, mainly due to new openings. Despite indigestion in its restaurants arm, Whitbread remains a solid defensive stock. Buy.
Game Group is riding the crest of the current wave of video games console demand, with demand for the Nintendo Wii driving its growth. The company has also received a welcome boost as its acquisition of rival Gamestation has been cleared by regulators. But Game warned this week that a higher proportion of hardware sales will reduce margins. However, this should be priced in.
In June, the package holiday groups MyTravel and Thomas Cook got together to cut costs and strengthen their market positions across Europe. Early evidence suggests the merger is going as planned. The savings are set to be better than expected, while the group has overcome tax difficulties and is on track to buy back around 266m of shares. Trading appears resilient with only the US showing weakness. Hold.
If, as widely believed, newspaper advertising is a good barometer of the strength of the economy then the forecast remains chilly. Johnston Press, one of the country's leading regional newspaper publishers is witnessing an improvement, but there are doubts it is sustainable. Analysts believe advertising will, at best, increase by 2 per cent but could be flat. It still looks too early to chase this company's shares.
Has the credit crunch started to hit the really rich? Raymarine makes a range of electronic marine gear such as navigation equipment and rich men's toys such as fishfinders and under water cameras. As well as a strong pipeline of new products the company is mopping up a number of its distributors. The shares look set for fair weather. Buy.
Shares in Mears, which repairs council houses, have lost their way recently, which may have something to do with the market's concern over the long-term intentions of the chairman Bob Holt. He sold the bulk of his shares and handed over the reins to a new chief executive, before returning to the post last year. To underline his commitment, he has agreed an option package. The shares do not look expensive. Buy.
Southern Cross Healthcare is the largest provider of care-home services for the elderly. Growth has been rapid in a sector where it is essential to have scale in order to drill down costs. Despite turmoil in credit markets, Southern bankers are giving full backing to its growth ambitions. The shares have performed strongly since floating in 2006. Southern should soon head north again. Investec has a target price of 832p.
The headwinds which buffeted the reinsurer Benfield Group during the first half of the year have shown no signs of easing. The shares buckled this week after a warning that a weak dollar and softer prices within the reinsurance sector were blowing it off course for the full year. Scope for any significant upside in the short term appears unlikely.
As a result of a cumulative loss of contracts, FKI's Logistex unit will record sales 15 per cent lower than expected in the second half, and profits will also be hit. The warning comes only two weeks after FKI guided toward improved growth, but more importantly, it reduces the attractiveness of the Logistex division, which FKI intends to spin off or sell. Its shares look set to underperform for some time.
Perhaps best known for running the Docklands Light Railway and the country's nuclear warning systems, Serco, the outsourcing specialist, is one of the most successful in its sector, consistently achieving double digit sales growth. Due to profit taking, shares in Serco recently slipped back from a high of 515p at the beginning of May which means they are now within the buying range.
Engineer GKN has a thriving order book and should start to feel the benefit of a three-year cost cutting drive of its automotive operations soon. Its shares have fallen due to jumpy investors worrying about its exposure to the US market. But some believe these fears are already priced in, and the stock could now bounce. Hold for now.
Women love handbags and many are prepared to pay as much as 1,000 for designer ones like Mulberry's. Though growth has slowed recently, sales are still up 9 per cent. Mulberry has ambitions to be a global British brand along the same lines as Burberry. The signs are it has a good chance of succeeding. Buy.
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