Investment Column: John Laing takes PFI into Europe

Photo-Me could be a buy despite broker?s coments; Nectar makes pub group Honeycombe so sweet
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Governments across continental Europe are catching the Private Finance Initiative bug. John Laing accompanied a positive trading update with news that it has formed a joint venture with Commonwealth Bank of Australia, partly to tap this emerging continental market - specifically in the roads sector (as well as hospitals in the UK and abroad).

The company, which has ditched its traditional construction and housebuilding arms over the last three years, now lays claim to being the leading PFI player. It has 37 projects on the go (21 at the operational stage), with dozens more in the bid pipeline.

The location of its bids show just how far PFI has spread - projects include a hospital in Portugal and a motorway in Hungary.

In the UK, not only does PFI continue to grow but the process has become less controversial and more efficient. Here Laing provides accommodation for a range of state entities, such as schools and the police. The company also has separate rail and roads divisions.

The tie-up with the Commonwealth Bank of Australia, which will provide £300m of equity, has the potential to double, over the next five years, the £3bn-plus capital value of PFI projects that Laing is already engaged in.

Analysts note that, as Laing's portfolio matures, the underlying value of the projects increase. We can expect the interim figures, due at the end of August, to show this.

Also yesterday, the Laing family placed 7.5 million shares, about half of their remaining holding, with institutional investors.

That the placing yesterday did not knock the shares - unchanged at 229.5p - shows the confidence the City now has in the Laing story. Of course, PFI involves risk transfer to the private sector but Laing's specialist expertise should mean that risks are well managed. Buy.

Photo-Me could be a buy despite broker?s coments

Photo-Me said it has reached a "turning point", having returned to profit and resumed dividend payments with the full-year results yesterday.

The photo-booth company, which rode the internet wave, depends on the exciting world of digital photography these days. The group's traditional (non-digital) booth business is mature and is holding steady. Growth is coming from the sale of digital minilabs to photo developing businesses - from High Street chemists to mail order companies. From later next year, there should also be a contribution from Photo-Me's digital kiosks, which will allow consumers to develop their own prints from machine sites in public places. For the year to the end of April, turnover from the minilabs more than doubled to £79m.

Photo-Me shares closed down 5.5p yesterday at 99.5p, on worries voiced by the house broker, Cazenove, about its manufacturing run-rate and prospects in Japan. Vernon Sankey, the deputy chairman, described these concerns as "incomprehensible". If you are not put off by the hype that surrounded this business in its internet days and by the large-scale share sales by directors in the last few months, this could be a good time to buy.

Nectar makes pub group Honeycombe so sweet

With huge pub companies such as Punch Taverns and Enterprise Inns swallowing up so much of the market, there has not been much room for Honeycombe, an AIM-listed pubs operator, to make its mark. Trading has been difficult over the past year in its core estate, and the company said underlying pre-tax profits had been flat at £1.8m after stagnant like-for-like sales. This is a steady performance, however, given the dire straits of some managed pubs operators.

But Honeycombe, which focuses on local, community pubs, has been finding other ways to grow. Instead of battling to buy new sites, it has signed contracts to manage pubs on Punch's behalf. It can then exploit the buying power of Punch for cheap beer and food, but does not have the expenditure of buying the pubs outright.

Another similar device for expansion without expenditure is a venture capitalist trust, called Nectar, through which it raises funds from outside investors to buy new sites. Honeycombe then manages the pubs but holds on to a stake in the property's value.

Fees from Nectar are expected to double over the next year and the income generated from managing other companies' assets is set to become 40 per cent of Honeycombe's profits as it wins more contracts.

Despite selling off some assets in a sale and leaseback deal, it is still highly geared. But it has capped its exposure to interest rates at 6 per cent and cash generation from its growing management fees looks secure. At 70.5p, it is trading at about 13 times forward earnings. Buy as a long-term sweetener.

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