The Week In Review: Regent Inns cheers up after hot summer
Saturday 10 February 2007
Regent Inns has seen its first-half profits slide after the shake-up in the licensing laws. The owner of the Walkabout pub chain and Jongleurs comedy clubs yesterday blamed the extension of opening hours at community pubs for keeping customers drinking in their locale for longer and arriving later at the com-pany's high-street venues.
Regent Inns has also been enforcing the Challenge 21 policy to clamp down on underage drinkers. Its doormen are asking for ID from younger-looking customers, and analysts say the company turns away 5,000 customers a week.
These factors, combined with the long, warm summer, have eaten into operating profits, which fell to £6.7m during the six months to 30 December, compared with £8.5m a year ago. However, sales picked up over the Christmas and New Year period, with like-for-like sales up by 3.1 per cent at Walkabout and 4.9 per cent at Jongleurs.
Analysts are looking to see if the company succeeds in turning around Old Orleans, the 31-strong restaurant chain it acquired from Spirit for £27.6m last August. New menus and entertainment programmes have been launched.
With the company forecasting another 50 sites across the country, there is still plenty to keep investors excited. Buy
DIC Entertainment, the children's character group, issued its second profits warning in three months this week, sending its shares down to historic lows. To blame were weak audience figures for new shows on the CBS channel it runs. For those new to DIC, now is no time to be buying into the group. For existing shareholders, it's probably best to stick with the stock, although the road to recovery looks set to be a long one.
The theory behind the demerger of the Smiths News magazine and newspaper distribution business from WH Smith was that it would be able to work with publishing companies that would not have dealt with an operation attached to a bookseller like WH Smith. There has already been evidence that this strategy is working. The past six months has seen profits warnings from both of the group's main rivals, Dawson and John Menzies. Against this background, the trading statement Smiths News put out at its first shareholder meeting this week, revealing a 6 per cent rise in sales for the first five months of its financial year, is rather good. Hold.
Polar Capital became the latest specialist asset manager to list on the Alternative Investment Market this week. A little less than half of the $3.3bn it manages is in hedge funds, which aim to make money for investors irrespective of how the wider stock market performs. The rest is invested in traditional long-only funds run by Polar - they make money only when the market is going up. Key to growing the business is increasing its funds under management. In the past nine months alone, this figure has risen by 34 per cent to $3.3bn, and analysts are convinced this positive trend will continue for the foreseeable future. Pre-tax profits at Polar are tipped to come in at £6.7m in the year to 31 March 2007 and rise to £9.2m in 2008. Buy.
After a very disappointing first quarter, Dicom looks to be on the growth path once again. The software group has made up for a slow start to its financial year as it reported a 52 per cent rise in interim pre-tax profits to £6m. All the orders it had hoped for at the end of its first quarter came through in the second, and City analysts expect profits at Dicom to hit £16m by the end of the year. Clearly, the group operates in a fast-growing sector, but it has disappointed investors on several occasions, mainly because the timing of its revenues can be difficult to predict. Nevertheless, at 18 times forward earnings, its shares are worth holding.
888 Holdings played its cards better than most of its competitors when the US authorities called their bluff by introducing new legislation designed to frustrate the activities of online gaming groups. Having focused more of its efforts on building up a substantial non-US business than rivals, it was always going to be less affected by a disaster like this. 888 could make an attractive partner for another online gaming operation given that, with the US in effect closed for business, there are too many companies competing for a smaller pool of players. Buy.
The year 2006 was a terrible one for Pace Micro Technology. Delays in developing, testing and shipping products to the US led to a string of profits warnings and a loss of nearly £30m. But Pace looks to be on the mend. It has issued a forecast-busting set of interim results, which heralded a return to profitability. For the six months to 2 December, pre-tax profits came in at £1.4m, compared with a loss of £8.9m last time, thanks to a jump in shipments to the US. Investors should expect momentum at Pace to start to build in 2007. At 11 times next year's earnings, the group's shares do not adequately reflect this. Buy
If you believe the latest gossip, Chrysalis is mulling a strategic review that could lead to the sale of its radio business. Such a scenario is possible, but investors should not bet on it. The group's management has always resisted calls for a disposal and the recent improvement in the radio market takes the pressure off them in a big way. This week, Chrysalis issued a trading statement at its annual shareholder meeting that showed a 5 per cent rise in sales during January. Analysts expect this trend to continue into February. Buy.
Reckitt Benckiser has outperformed its peers for seven straight years and judging by this week's annual results from the consumer goods giant this trend is unlikely to be reversed any time soon. For the year to 31 December 2006, sales rose 18 per cent to £4.9bn, helping net income soar 19 per cent to £786m. Margins were up, debt down and cashflow jumped a staggering 26 per cent to £953m. Reckitt was able to raise the amount of cash it returned to shareholders (including both dividends and share buybacks) to £600m from £565m in 2006. Hold.
2006 is a year that software developer Alphameric wants to forget. Pre-tax profit collapsed to £735,000 from £7.1m after sales slipped 7 per cent to £66m. Even its broker Investec called the full-year result, "disappointing". Rodney Hornstein, its well-regarded chairman, has also decided to leave this year after more than a decade with the business. Still, the company insists it has surmounted the problems it experienced last year and expects to benefit from cost cutting during 2006. A joint venture with Racecourse Media Services, a consortium of 30 UK racecourses, is also potentially lucrative. Worth a punt.
Telephonetics, the speech recognition group, this week issued its third profit warning in four months sending its shares crashing to an all time low. The latest setback is the news that its results for the year to 30 November 2007 will be significantly weaker than expected. Despite the problems, however, valued at just £9.7m and boasting a cash pile of £3m, Telephonetics stock is probably worth holding on to in the hope that the business will recover. But you will need to be patient - it is likely to be a long haul.
BA shares could fly even higher
British Airways shares have soared 415 per cent over the past four years. In fact, in the past year alone they have risen 77 per cent. From a distance, it seems pointless investors buying into the airline; surely all the gains have already been had? Not true, says Merrill Lynch, which has moved its clients into the stock.
Key to the US broker's bullish stance on BA is the opening of London Heathrow's Terminal 5 in March of next year. By then, about 90 per cent of BA's operations will have been transferred from three terminals into the new T5. Merrill is convinced this move will lead to significant revenue and cost-savings opportunities for the airline.
First, the revenue opportunities. By working from three Heathrow terminals, BA finds itself at a competitive disadvantage to other carriers. This is because of the significant time its passengers need to make connecting flights. Merrill estimates that passengers with connecting flights account for about 35 per cent of BA's total traffic.
Now for the cost side of the equation. Although the US broker admits that BA will face one-off expenditures because of the move, it also points out that it will be able to save a lot. Potential savings include no longer having to bus passengers between terminals, and being able to reduce check-in staff numbers.
Meanwhile, the airline should receive a boost in the coming quarters from lower fuel prices. A takeover offer for BA should not be ruled out.
These recommendations are taken from the daily Investment Column
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