Airtours brochure sales impart a glow

The Investment Column

For a man who runs Britain's second-largest holiday company, Airtours chairman David Crossland never sports much of a tan. But he had a healthy glow about him yesterday as he reported figures which hint that the industry may be headed for better times after last year's disaster.

Then, a combination of over-capacity and a long, hot summer at home led to more than a million unsold holidays which had to be deeply discounted. The result was a 20 per cent profits slide for Airtours to pounds 59m.

This year, the industry has cut capacity by 15 per cent while bookings are 12 per cent lower. Airtours' summer bookings are 19 per cent below last year as it chose to hang on to margins rather than chase volumes.

As some smaller rivals were discounting their summer `96 holiday as early as January it is not surprising that Airtours bookings took a hit. The good news is that Airtours has been making more brochure sales with better margins. Also cheering, for the operators if not consumers, is that May booking prices were 15 per cent up on last year, with June prices 20 per cent higher.

The key now is the school summer holiday season which starts in mid-July. Airtours has fewer unsold holidays than last year and winter bookings are 17 per cent higher.

Losses in the traditionally weak first half were also reduced. In the six months to the end of March, the loss was struck at pounds 31.2m against pounds 35m the year before. The performance was weakest in the UK where the deficit increased to pounds 26m largely due to the poor, unusually warm October.

Bookings to Greece remain weak and the company has cut its Greek capacity by 30 per cent since last year.Airtours is trying to reduce its dependence on UK bookings which still account for half of sales. Scandinavia and Canada make up a growing chunk of business.

The balance sheet has been bolstered by the pounds 100m investment by Carnival corporation of the US which has a near-30 per cent stake.

The group has also contracted out all its information technology operations to EDS of the US which will take control of Airtours booking systems. With cruise bookings soaring and longer-haul holidays popular, the outlook is set fair providing the industry keeps its head and does not add capacity next year. Mr Crossland says he expects capacity to remain constant in 1997, though it takes only one to break ranks and cause havoc. Analysts expect profits of pounds 71m for the full year. The shares, a penny higher at 518p, trade on a forward rating of 15. Hold.

Windfall tax

rider to Hyder

If Hyder can achieve the pounds 100m of savings it suggested yesterday, the takeover earlier this year by Welsh Water of Swalec will have done its job for shareholders. That is just as well, because having blazed the merger trail, the combined group, like United Utilities in the North- west, has in effect bowed out of the speculation bubbling under the rest of the water and electricity sectors.

With no takeover froth likely to boost the shares, attention focused yesterday on the extent of the proposed cost-cutting measures and the size of future dividend increases. The cuts were better than expected, while there was less news on the future growth in the payout than the market would have liked. On balance, however, it welcomed the combined group's maiden figures and the shares edged 5p higher to close at 723p.

Plainly there is logic to combining utilities with broadly similar customer bases. If you bill customers once instead of twice and need only one set of information technology equipment the potential savings are likely to be substantial. Where the process will end and just who the eventual beneficiaries will be of the probable return to large monopolistic providers of basic services is another point and probably not one to trouble the investor. Unless, that is, the noises from the Labour Party yesterday translate into something as concrete as a windfall tax or ever-tighter regulation.

That is the key uncertainty with all utility companies in the run-up to an election and it is something that is arguably not adequately reflected in share prices.

Certainly, a dividend yield of under 6 per cent is hardly a generous compensation for such a high degree of regulatory and political risk.

On the other hand, buying Swalec provides Hyder with a firm base for continued dividend increases along the lines of the 14 per cent rise in last year's payout to 33.9p. A real rise of more than 10 per cent is pretty attractive when it is probably sustainable well into the future. But so it should be, given the risks. High enough.

Body Shop

revival on hold

Announcing a gloomy trading statement on the same day as rather disappointing May retail sales figures was helpful to Body Shop yesterday.

A day earlier and it would have looked seriously out of kilter with the rest of the high street which has been basking in the glow of upbeat pronouncements on consumer spending. As it was, the shares slid only a couple of pence to 180p.

There was nothing here to indicate that a Body Shop revival is round the corner. In the first three months of the current year, group sales were 14 per cent higher, but that includes 34 new openings which takes the total to 1,407 at the end of May.

Strip those out and like-for-likesales were as flat as a pancake. UK sales did not rise at all which compares badly with some recent bullish figures from rivals.

In the United States the problems continue with comparative sales down 5 per cent. The only glimmer is still the international markets which registered a 4 per cent sales increase.

Herein lies the problem. Body Shop says that the Far East and other "rest of the world" regions will prove ready markets for colourful foot lotion and fragrant mud packs. But the biggest concentrations of Body Shop stores are either in the UK or the US. If these markets are performing poorly it drags the rest down.

The American business recorded a loss last year though it says improved ranges and better advertising will help. The number of new US openings has been scaled back to 14 this year.

The Roddicks may be holding out the olive branch to the City with promises of higher dividends but it needs to deliver trading improvements, too.

The shares jumped 19p back in May when the company announced a 42 per cent increase in the payout but they have gone nowhere since.

Analysts were leaving their profit forecasts unchanged yesterday at pounds 40m which puts the shares on a forward rating of 14. Not exactly expensive but unlikely to go anywhere until there are genuine signs of a recovery in the American operations. Unexciting.