The Investment Column: Hilton's a hold despite betting woes

No Miller delight as beer market looks flat; BOC's blockbuster results make it a worthy buy
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The Independent Online

The continued success of Arsenal and Chelsea in the Premiership this season may delight fans, but it is annoying bookies, who have to stump up every time the favourites win.

Announcing a 19 per cent increase in profits for the four months to the end of October, Hilton, the owner of Ladbrokes, said yesterday that football results were now starting to go against it after a run of luck earlier in the year.

Growth in its hotel rates is also beginning to slow. Rates per available room (revpar) collapsed in the wake of 11 September but as the return of travellers continues, comparatives are getting harder.

Revpars in its London hotels, for example, were 15 per cent higher in July 2004 than July 2003, but in October they had dropped back to 4.2 per cent compared with October last year. The full recovery in the hotel sector is still to happen, but revpar is being driven by occupancy at this stage, rather than room rates, which should allow for price increases next year.

A number of hotel groups have decided to sell their assets in exchange for a less-risky management contracts, and Hilton has put 11 hotels on the market. These could fetch as much as £100m, which would improve the balance sheet.

Hilton is also planning to combine its hotel and betting strengths in a super-casino in Blackpool, but the Government's Gambling Bill, which will allow such developments, said recently that only eight can be built. This would be a money-spinner, but whether Hilton is one of the chosen eight remains to be seen.

The shares have had little to drive them upwards recently, with the roll-out of fixed-odds betting terminals - video roulette machines - in its Ladbrokes shops now complete. These led to a big spike in earnings, but takings have now levelled out.

Hilton trades at about 12 times earnings, which is reasonable given the ups and downs of betting patterns and the slow recovery of hotels. A worthy hold, however.

No Miller delight as beer market looks flat

The battle for the low-carb beer market in the US has turned quite nasty over the past year, with advertising campaigns/all-out slanging matches between Budweiser and SABMiller's Miller Lite. But SABMiller, the enlarged brewer created from South African Breweries' takeover of Miller, should feel flattered that Bud, with more than 50 per cent market share, should take the time to trash its brand. The reason is that SABMiller is improving the performance of Miller Lite, whose growing sales contributed to the 80 per cent increase in half-year pre-tax profits to $1.2bn.

We in this column have never bought in to the SABMiller story, being sceptical on the benefits of the Miller takeover. The brand had suffered, volumes were slipping and Budweiser had had an easy ride. Volumes are now up more than 2 per cent, but Miller Genuine Draft, a full-carb beer, is still struggling. It is in a declining market but its volumes are dropping faster.

While emerging markets, such as India, Russia and China, are boosting SABMiller's results - volumes were up 23 per cent in China - Western beer markets are still pretty flat. But the company is still committed to them, and is now warning that increased investment behind its other Miller brands will water down profits, as will rising energy bills and raw material costs. The shares have had a very strong run recently and look too expensive, given the likelihood of slowing growth to come. Avoid.

BOC's blockbuster results make it a worthy buy

On the face of it, inhaling the figures announced yesterday by BOC, the industrial gas supplier, might have investors feeling as high as a kite. With expectation-beating results, BOC investors have every right to be relieved as they have endured their fair share of bad news over the past few years. But is it now time to be buying BOC shares, or are they likely to deflate again, like a week-old hydrogen-filled balloon?

Revealing pre-tax profits for the fourth quarter up 133 per cent to £141.5m, the company cited a recovery in the global economy as the main reason for its blockbuster results. The market tends to focus on subsidiary BOC Edwards, which supplies the semiconductor industry, but this accounts for only 10 per cent of revenue. Even though this sector is experiencing a slowdown, the overall impact on BOC seems exaggerated.

The company still faces 9,500 lawsuits in the US in connection with manganese fume exposure among steelworkers. That is unlikely to be resolved overnight, and its exposure to a weakening dollar remains cause for concern. So while the financial results for the past three months are undeniably excellent, there are still reasons to be cautious. But the downside is fairly limited, and with more than £1bn going into new growth projects, the stock is a solid long-term buy.