The Investment Column: Don't check out of Millennium & Copthorne just yet

Huntsworth; European Goldfields
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The Independent Online

Our view: Hold

Share price: 440p (-2p)

Anyone hoping to see Millennium & Copthorne taken over by a larger hotel chain or conduct major asset disposals the way InterContinental has done will be disappointed. M&C is 52 per cent-owned by Kwek Leng Beng, its Singaporean chairman, and he is intent on the company remaining an independent owner and operator of hotel assets.

It is for this reason that the group's shares trade at a discount to the value of its property. M&C's net asset value stands at £1.4bn, or 480p a share, while its stock closed at 440p yesterday. If its shares are going to make any progress in the short term it will be in response to individual hotel sales. The group made a £52m profit when it sold the New York Plaza last year, and its Biltmore Hotel in Los Angeles, favoured by Hollywood celebs, is said to be the next to go.

Long term, however, M&C offers good value. Its considerable freehold asset base underpins the company's value, while management seem to be doing a job running the portfolio of 91 hotels in the Americas, Europe, Middle East, Asia and New Zealand. Yesterday's first-quarter results saw pre-tax profits rise to £11.5m from £7.5m. Revenue per available room - the key metric in the industry - rose 14 per cent during the quarter, or 8.4 per cent when one strips out the effect of currency movements.

Thanks to the property expertise of its chairman, M&C has the capability to turn hotels into residential developments. This is useful when it comes up against an underperforming site in its portfolio, and the group has a good track record on this front.

At 24 times forward earnings its shares are not a steal but are worth holding on to.


Our view: Buy

Share price: 91.25p (+0.25p)

Huntsworth, the international public relations group, has had an extremely eventful 12 months. It merged with its rival Incepta, soldunderperforming assets and has managed to generate some impressive cost savings. Given all this corporate action it is no surprise the annual results Huntsworth unveiled yesterday were rather complicated.

Among their most interesting features was the 4.3 per cent revenue growth the company generated from its continuing PR activities. Profits margins continued to improve because of the £5m costs savings the merger has generated. This is double the figure forecast.

Huntsworth said it has made a strong start to the year, and boasted that earnings in the first half of 2006 should beat expectations. The company insists this is because of the awesome growth being enjoyed by the PR industry. It has commissioned a report that suggests the global sector will grow 11 per cent per annum through to 2010, irrespective of what happens to the wider economy. This is a little hard to believe.

Presently, Huntsworth is clearly benefiting from the deals being done in the City. It generates about 45 per cent of its sales from financial PR, in whichthe group earns juicy fees by spinning for the various parties involved. Although this boom will probably continue for some time - corporates and private-equity firms have record amounts of cash to spend on acquisitions - it will certainly grind to a halt before 2010.

In the meantime, let the good times roll. Trading at 12.5 times forward earnings, Huntsworth shares offer good value. They stand at quite a steep discount to its rival Chime Communications, which is unwarranted, and should be bought.

European Goldfields

Our view: Buy

Share price: 216p (+6.5p)

There was good news from European Goldfields yesterday. Its recently submitted business plans for the Skouries and Olympias projects have been endorsed by the Greek government. This marks a significant milestone for the company and validates its approach of working closely with the government and local community. The news takes the company one step closer to getting production under way at the two key projects.

EG controls both through its 65 per cent stake in Hellas Gold. Its co-shareholder, with the remainder of the shares, is Greece's biggest construction company. The partnership has so far been highly successful. In November, the joint venture restarted the Stratoni lead-zinc-silver mine. It has been producing high quality zinc and lead concentrates since, and at current metals prices should generate considerably more than $21m (£11.8m) of free cash flow in 2006.

Stratoni makes up only a small part of EG's value. The Skouries project is the group's big hope. Analysts believe it is worth £124m, thereby accounting for nearly half of the group's valuation. It is forecast to be operational by 2008 and to produce approximately 200,000 ounces of gold and 40,000 tonnes of copper annually. If it does, it will turn EG into one of AIM's biggest mining companies.

With no debt, $35m in cash and the profits from the Stratoni mine, EG should be able to finance the development of the Skouries and Olympias projects without having to issue significant amounts of fresh equity. Given their potential, the EG stock is a buy.