The Investment Column: Future has a Spring in its step, but is best avoided for now

Carluccio's; GW Pharmaceuticals
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The Independent Online

Our view: Avoid

Share price: 41.75p (-0.5p)

The year 2006 is one that shareholders of Future, the publisher of specialist interest magazines such as Xbox, Total Film and Fast Car, will want to forget. The group issued three profit warnings and pretty much halved its dividend payout as it struggled to cope with weak advertising revenues and news-stand sales in its major markets.

Investors now hope the worst is behind Future, but that is far from certain. Without doubt things look to be moving in the right direction.

A new chief executive, in the form of Stevie Spring, took the helm of the publisher in the summer and in November unveiled a radical restructuring programme. The loss-making Italian business was to be sold off, poorly performing titles closed and £6.4m was to be invested in developing the company's online product offering.

The good news about the trading statement delivered at Future's annual shareholder meeting yesterday is that it contained no profit warning. However, Roger Parry, the chairman, did warn that market conditions are still tough and are likely to remain so for the whole of 2007.

If Ms Spring's restructuring programme succeeds, investors can expect a considerable recovery in the group's earnings and share price. But that remains a big if. Until there is some concrete evidence of a turnaround at Future, readers would do well to steer clear of the stock.


Our view: Take profits

Share price: 191.5p (-7p)

As yesterday's news of a cash crisis at FishWorks shows, investing in restaurant companies can be a risky business. In fact, this column warned some months ago that the fish restaurant chain had an uncertain future. There are no such problems at Carluccio's, the Italian restaurants group. It is flourishing.

The group's trendy eateries boasted yesterday of a 22 per cent jump in sales for the 16 weeks to 14 January. Although there was no update on margins, analysts expect them to have remained steady despite higher energy costs, rates and labour costs. Since September, the start of the company's new financial year, it has opened two new restaurants and three more are scheduled for sites in Manchester, Walton-on-Thames and Covent Garden.

At present, Carluccio's trades out of 28 sites, the overwhelming majority of which are in the south-east of England and, of these, most are in London. Pre-tax profits for 2006 came in at £3.4m and this figure is tipped to rise to £4.9m this year and to £5.9m in 2008.

Part of the company's success comes from its impressive offering of Italian dishes which goes way beyond the standard pizza and pasta combo. Also, attached to every restaurant is a delicatessen selling Italian specialities. This is another key driver of sales because it means outlets can attract extra footfall throughout the day.

Carluccio's shares have been a top performer. Since listing in December 2005 at 94.5p, they have more than doubled. However, the stock now trades at a hefty premium to the wider restaurant sector, which is somewhat undeserved given its growth prospects.

Although the group's format has been a hit in the south-east of England, it is far from certain that it will enjoy similar success across the whole of the country. This could dramatically limit the number of restaurants it can open. Now is a good time for investors to take profits.

GW Pharmaceuticals

Our view: Worth a punt

Share price: 75.75p (+2.75p)

The next 12 months are crucial for GW Pharmaceuticals. 2007 is the year when it hopes to secure both regulatory approval from the European Union for its key Sativex treatment and to sign a partner for the drug in the US.

Sativex is a mouth spray derived from cannabis and the biotech believes it can relieve the pain symptoms of multiple sclerosis and cancer. The market GW is addressing with the drug is massive and is all the more lucrative for the fact there are few products already out there servicing it. Analysts believe that once Sativex gets approval from US regulators, it could generate more than a billion dollars in revenues, making it a blockbuster.

Before GW starts late-stage trials of the drug across the Atlantic, it wants to secure a major pharmaceutical company as a partner which will shoulder some of the costs associated with testing the treatment and help distribute it.

Although the EU market is a lot smaller, it is still significant for a group of GW's size (at yesterday's close, the group's market capitalisation stood at £90m). The biotech can expect sales of a few hundred million dollars in Europe once Sativex is approved. Yesterday's full-year results from GW showed it has a cash pile of £19m. This means it has plenty of money to fund its development. With the newsflow due from GW in 2007 in mind, its shares are worth a punt.