The Week In Review: Wetherspoon defies rain and the ban

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The Independent Online

With rumours swirling about its performance, the pub group JD Wetherspoon surprised this week as it shrugged off the poor weather and the early days of the smoking ban to prove it was in better health than expected. In the 11 weeks to 14 July, sales were up by nearly 5 per cent.

The company says it is too early to get a proper picture of the ban's impact. But food sales are soaring, and the ban could actually make pubs more attractive places. Will smokers stay away for ever? We think not. Trading at 28 times expected full-year earnings, the shares are not cheap. Still, at the start of the year we said take profits at 700p. Having fallen more than 10 per cent since, it might be worth buying back in.

NORTHERN FOODS

Northern Foods, supplier of ready meals to Marks & Spencer and maker of Goodfella's pizza, posted a 2.6 per cent rise in sales in the 13 weeks to June. Ready meals did well as the weather caused barbecues to be ditched in favour of nights in front of the telly. Northern warned this week that trading remains challenging but, under new management, the turn-around seems under way. At 15 times 2008 earnings, it is worth holding on.

LOGICA CMG

Is the worst over for Logica CMG? It's going great guns in continental Europe, but yet again the UK is performing poorly, with first-half revenues falling 9 per cent. Still, Logica is promising better in the second half from the UK business, which ought to start showing revenue growth. Trading at 13.9 times this year's forecast earnings, the shares aren't too expensive and have a prospective yield of 3.3 per cent. There's light at the end of the tunnel, so hold on.

ALBA

The consumer electronics group Alba plans to focus on one business – a smaller range of well-designed, HD televisions, DVDs, set-top boxes and digital audio kit. Alba says retailers have warmed to the idea of a new medium-priced range of TVs and audio equipment - but with consumer spending being squeezed, demand for electrical goods looks set to suffer. A risky buy.

TRAFFICMASTER

Trafficmaster's sat-navs help drivers find their way and avoid jams. The company has been transformed since the dark days after the tech boom, growing turn-over in each of the past three years. It is increasingly profitable, and analysts forecast further gains. But how much further can the stock rise? The shares are at a relatively demanding valuation. Longer term, there's a huge potential market, but at this price, hold.

LAND SECURITIES

Land Securities, which became a real estate investment trust in January, so must pay out at least 90 per cent of its earnings in dividends, claims the commercial property market remains buoyant, with its first-quarter lettings totalling over 65,000 sq ft. Like the rest of the sector, Land Secs is trading at a discount to assets making it more likely it will buy back its own shares when the opportunity arises. The shares are a reasonably safe hold.

MATTIOLI WOODS

Mattioli Woods specialises in pension consultancy for smaller companies. Profit margins are very attractive and the company has an excellent growth record. While government pension reforms are targeted at the mass market, ongoing tax simplifications are putting companies like Mattioli Woods in demand. Buy the shares on a long-term view.

SPORTECH

Can Sportech spearhead a revival in the Pools? The company, which runs Littlewoods, is trying to merge it with Vernons, but faces a Competition Commission probe. There is ample opportunity to expand here and overseas. The sale of the loss-making bookie Bet Direct has been good, and the company is paying down debt. At 12 times this year's earnings (there is no dividend), the shares are worth a flutter.

COLT TELECOM

Colt Telecom is in much better shape than it once was. It said this week that despite a sharp fall in earnings from voice-based services over the second quarter of the year, its profits were up to ¿8.9m from a loss of ¿9m in the same period of 2006. But analysts do not expect an improvement in profits in the second half even though the current valuation implies a significant turnaround is ahead. Given Colt's own cautious update this week, this is one to sell.

DAIRY CREST

Dairy Crest delivered a positive update to the City this week. Shares took a hit in May after the company recall a batch of Clover Spread due to "product quality issues". However, sales of Clover are now back on track. The stock trades on a valuation of 13 times this year's forecast earnings - it's a buy.

GREAT PORTLAND ESTATES

Great Portland Estates reported a better than expected 8 per cent rise in adjusted net asset value per share this week. The rental value of its portfolio - 84 per cent in the West End - has soared by an annualised 24 per cent. Can this continue? Well, the rate of growth is probably unsustainable but the company says demand for West End properties is still strong, while supply is short. The shares are not cheap. Still, the shares' high valuation looks to be deserved. Hold.

Rentokil continues spree, but shows little sign of cleaning up

There was a time when the pest-control and washroom-services group Rentokil was regarded as the benchmark for any corporate achiever. Its former chairman Sir Clive Thompson was known as Mr Twenty Per Cent for his ability to hit growth peaks every year. But it all ended in tears as it ran out of steam in the face of competition and spending cuts by customers.

Private equity groups are rumoured to have flirted with the idea of a bid, but Rentokil remains in play. There are stirrings on the share register, however. US activists ValueAct Capital, run by Jeff Ubben, a former Fidelity fund manager, has emerged with a 3 per cent holding and tongues are wagging again.

Trouble is, Rentokil has seemed on the cusp of recovery for a few years but stubbornly fails to meet expectations. After seeing off an attempt by former Granada boss Gerry Robinson to install himself as executive chairman and return cash to shareholders in 2005, the group has aggressively restructured. It has sold its burglar alarm and manned guarding operations and bought almost 100 businesses since the start of last year, focusing on its rat-catching, plants and parcel delivery areas.

The spree continued this week with the £19m acquisition of Lancaster Office Cleaning, which has big contracts in the City and Canary Wharf. The deal flags up the prospect of cross-selling services such as washrooms and office plants, but that is often easier said than done. The City seemed underwhelmed, one broker suggesting the money could have been better spent building up Rentokil's Far East operations.

Rentokil has already dampened prospects for the current year, warning that profits would be in line with 2006. The reason is that companies acquired are weaker in the first quarter. It is also feeling the impact of higher interest charges.

The shares are helped by a 4 per cent yield and bid or break-up hopes, but there's more excitement to be had elsewhere. Sell.

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