Nightclub operator Luminar hit its peak three years ago, when it had more than 300 venues. Since then, new bars have multiplied on the high street, resulting in a price war that has eaten into margins for Luminar and others. Rising staff and regulatory costs have also played their part.
Faced with tougher competition, Luminar has tried to reinvent itself by turning its venues into big, branded, city-centre nightclubs, but the results so far are not great. This week's trading update revealed an 8 per cent fall in like-for-like sales in the entertainment division.
Investors' patience is now starting to wear thin. Nevertheless, Luminar boasts a cash-flow yield of 7 per cent and this makes it a hold.
Although PlusNet shares have more than doubled since this column tipped them a year ago, investors should be in no rush to cash in. Business is booming at the broadband provider. For the year just gone, PlusNet said its customer base doubled. It is inevitable that the group will eventually be taken over by a bigger player.
But, even without a bid, PlusNet shares are cheap. At 14 times forecast earnings the stock trades at a 40 per cent discount to Pipex, its nearest peer.
Spirent is convinced that providing testing kits to analyse the performance of new telecoms equipment is a high-growth business. So last month it sold its plastics division, and promised to reinvest the bulk of the cash in a dash for growth.
But the group seems to have placed all its eggs in one basket. Although there may be upside for the shares in the short-term, such buoyant trading in this market will not last for ever.
The department store group Beale admitted its profits have been "unacceptably low" this week. Given this performance, it was no surprise to see the company cut its dividend.
In its present state, Beale is not an attractive investment. Its shares are trading at a hefty 90 times earnings. Hope that the retailer could be taken over is the only reason its stock enjoys such a rating, but such an outcome is not so likely. Sell.
VICTORIA OIL & GAS
Shares in Victoria Oil and Gas soared 60 per cent on Wednesday after the explorer said its prospects in Siberia were much better than originally thought. But Victoria faces significant risks by operating in Russia. One of the biggest is its reliance on Gazprom, the state energy company, to transport its gas reserves to market. Certainly, Victoria is one of the AIM's biggest oil and gas exploration successes. But it is not an investment for widows and orphans. A speculative buy only.
Trafficmaster, the vehicle navigation specialist, said this week it is on course to make an operating profit of around £1.8m for 2005, as it announced yet another contract win. Its shares, trading at 10 times forecast earnings for 2006, are not expensive given the ratings of some of its peers. With the group's growing momentum, this discount is unjustified and makes the stock a buy.
Publicis and WPP both recently abandoned plans to buy Aegis. But profit margins may be in for some improvement under new management, helping to give the stock new life. Meanwhile, a takeover of the company remains a distinct possibility, but Deutsche Bank believes the shares can hit 145p on their own accord. Buy.
The above are extracts from the daily investment column
There's good money ahead in Rexam's cans and bottles
Rexam is a global leader in the production of drinks cans and a major glass packaging player in northern Europe.
Recently, it has moved to faster-growing areas such as plastics packaging in emerging markets. By investing in countries such as China, where it made an acquisition only this week, the company hopes to cash in on the fast expansion that such economies are enjoying.
Investors should expect further acquisitions along these lines. Nevertheless, the manufacture of drinks packaging - be it glass or can - is by far the biggest part of the company's business and is likely to remain so for a long while (it accounts for 80 per cent of sales).
It's not difficult to see why. Its aluminium cans division enjoyed a 13 per cent margin last year, which is impressive for what is in essence a commodity product.
Overall, the company is tipped to secure solid profits growth in the years ahead. The company is hugely cash generative, throwing off about £200m of free cash flow every year, and at current trading levels it boasts a dividend yield of around 3.5 per cent. A rating of 12 times the forecast earnings for 2006, falling to 10.8 times in 2007, is too conservative for a quality outfit such as this. Buy.Reuse content