The Investment Column: Enterprise ready to explore world of Reits

Thorntons; Regal Petroleum
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The Independent Online

Our view: Hold

Share price: 1,272p (-20p)

Enterprise Inns, the UK's second biggest pub owner, has always been a terrific generator of cash, and that is unlikely to change any time soon. Even the smoking ban in pubs in England and Wales later this year is unlikely to change this.

A trading statement from Enterprise yesterday said that first-quarter earnings and cash generation have been in line with the board's expectations. It also indicated that the group will be able to return even more money to shareholders than it did last year. In 2006 it spent a whopping £393m on buying back shares for cancellation.

However, more important for the stock in the short-term is whether Enterprise decides to hive off its property assets into a separately listed Real Estate Investment Trust (Reit). City analysts have suggested that a move to the more tax-efficient Reit structure could create substantial value for shareholders. This prospect makes the stock well worth holding.


Our view: Hold

Share price: 154p (+1.5p)

The recovery at Thorntons seems to be gaining traction. Yesterday the chocolates maker and retailer unveiled a 3.2 per cent jump in sales for the four weeks to 6 January. This followed a difficult first quarter, when sales retreated 3.5 per cent as Britain sweltered in what was the second warmest summer on record since 1914.

The strong performance Thorntons enjoyed over Christmas came thanks to the retailer's expanded range of products, including boxed organic truffles, and a revamp of its website. Although overall sales for the first half of the group's financial year are down by only 2 per cent, it is now well-placed to redress this shortfall in the second half.

When this column last looked at Thorntons, the City was awaiting the results of John von Spreckelsen's strategic review. In September, the Thorntons chairman unveiled his proposal, which included an investment programme to revamp stores, the introduction of new products, a doubling in marketing spend, and a drive to increase sales to supermarkets and through the internet.

His reforms look to be working. In the current financial year, City analysts expect the retailer to deliver a rise in pre-tax profits of around 30 per cent, to £6.8m. With Thorntons' shares yielding 4.3 per cent, and the recovery at the company gaining pace, now is no time to take profits.

Regal Petroleum

Our view: Avoid

Share price: 1.58.25p (-1.75p)

To describe the oil and gas explorer Regal Petroleum as controversial would be an understatement - a massive one at that. But without it and its colourful founder and major shareholder, the Romanian businessman Frank Timis, the City would be a duller place.

When the company floated on AIM back in 2002, it promised that its Greek operations would be a major oil producer. They subsequently failed to deliver, and the focus then switched to the group's Ukrainian gas fields. This time the gas was there, but a dispute emerged about who owned the fields. A lengthy court battle followed and ended up in the supreme court of the former Soviet country.

Last month, Regal ceremoniously announced that it had won the case - but during the summer it had virtually had to give away a 15 per cent stake in the gas fields to a mysterious offshore company.

For most of its time as a listed company, Regal's board has been in a state of turmoil. Director after director has resigned. Yesterday, Roger Phillips, finance chief at the company since 2004, became the latest to step down. Alongside news of the departure was a trading statement which underlined the fact that Regal is a sizeable gas producer in Ukraine. Nevertheless, it has a very long way to go before it regains investor trust.