The Investment Column: Enterprise Inns still worth holding

Home in on soaraway Topps Tiles - Patientline's healthy outlook is attractive
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The Independent Online

For a company peddling the "sin" of alcohol consumption, Enterprise Inns manages to put together an extraordinarily pious statement.

For a company peddling the "sin" of alcohol consumption, Enterprise Inns manages to put together an extraordinarily pious statement.

Fine full-year results yesterday from the country's biggest pubs landlord were accompanied by talk of focus on "quality": "The average pub goer is more discerning and that quality is what counts." Its tenants, the company insists, make a "fair" living - it published figures showing more than two-thirds earn more than £30,000 a year.

The company wants "the development of a more civilised drinking culture". It lashed out at pubs encouraging and members of the public indulging in "binge drinking". It even sounded positive on the Government's proposed partial smoking ban.

To be fair, Enterprise does seem to be one of the good guys in the industry. Its 8,727-strong estate (at the end of September) is unbranded. It relies on the ingenuity of its licensees to know their local market and to create a pub that is appealing for its location. For many who are fed up with the ever-onward march of the chain on the high street and in the pubs sector, this must be the right strategy.

Earlier this year, Enterprise bought the Unique Pub Company for £609m, adding some 4,000 pubs to its estate. The underlying operating profit growth seen for the year to the end of September was 8 per cent, while the dividend was raised 40 per cent.

There is no getting away from the shadow of the smoking ban: the Government has proposed that establishments where food is served must not permit smoking.

Ted Tuppen, the chief executive at Enterprise, argues that in the long run, smoke-free pubs may actually attract more people. Also, he hopes that the consultation period will achieve some change in the proposal. He'd like to see pubs segregated into smoking and non-smoking areas. As it stands, the Government wants pubs to choose to be one or the other.

A good company but the issue of whether tenants are being "squeezed" and the smoking ban make Enterprise, at 683p, a hold.

Home in on soaraway Topps Tiles

Britain's television obsession with home makeover programmes can be blamed for a number of things: making Laurence Llewelyn-Bowen a celebrity is one. Making shareholders in Topps Tiles very happy is perhaps another.

Yesterday Topps said what most investors were expecting it would - that this was a blockbuster year. The company reported record numbers: full-year turnover up 32.5 per cent to £157.6m; pre-tax profits up 78 per cent to £33.8m; an increase in the final dividend of 146 per cent to 8p.

Topps wants to grow at its current rate for another six years, by which time it aims to have 350 stores in the UK (from 220 at the moment). The company currently has no plans to expand abroad apart from the 11 stores it operates in Holland as part of a joint venture - and, given how much growth it sees in the UK, there seems little point in changing that policy.

Most competition tends to come from relatively small, local shops which struggle to keep up with the pricing power Topps has, through its ability to buy in huge bulk. Those savings are passed on to customers - so even trade users are beginning to convert to Topps.

The shares, available for little more than 50p in 2002, closed at 228p yesterday. Heady stuff, and so any investors wishing to take money off the table at this stage can hardly be blamed - the shares, trading on approximately 17 times earnings, are not cheap any more and the growth rate will slow eventually.

But for investors not owning the stock, there are few British retailers showing such confidence and so long as management keeps hitting targets there is plenty of upside left in these shares. Buy.

Patientline's healthy outlook is attractive

Patientline is getting to some important milestones that should provide comfort for investors.

The loss-making (though fast-growing) business provides bedside terminals for patients in hospitals. These supply entertainment - TV, radio and internet access - plus communication: phone and e-mail. In the future, the terminals will also provide access to electronic patient files. Patients buy time on the terminals.

This is a new market and Patientline has nearly two-thirds of it. Delivering half-year results, it said that, from the next financial year, it would significantly slow the rate of terminal installation - which costs about £1,600 a time - bringing forward profitability.

The group has been putting in the machines at a rate of 20,000 a year. It now has some 65,000 in place. On "mature" machines (installed for nine to 12 months), it is making £2.10 a day, a 55 per cent operating margin, before depreciation.

The company also has new, larger bank facilities that ought to put an end to rumours that it is going to be issuing equity. For the half-year, revenue was up 45 per cent to £23.3m, while underlying earnings were 142 per cent higher at £7.9m.

The company also has great potential overseas, especially in the US. Patientline shares, at 125.5p, remain attractive.