The Investment Column: Hold on to First Choice as it flies through the clouds

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The Independent Online

First choice Holidays should be the, er, first choice for investors looking to put a bit of money into the leisure sector.

First choice Holidays should be the, er, first choice for investors looking to put a bit of money into the leisure sector.

The company has flown through the turbulence in global travel markets since the advent of the terrorist threat, and profits are climbing steeply again. The pilot, chief executive Peter Long, set a course that has taken First Choice away from dependence on the traditional sun, sea and sangria family holiday and into more niche areas. It has increased its offering to long-haul destinations, pushed into specialist holidays such as cruises and villa breaks, and even worked hard to establish a reputation in adventure holidays and student travel.

Mr Long has also laid off the competition for customers on short-haul routes, where the low-cost airlines have produced a revolution in the way people book their holidays.

Most successful of all, Mr Long has worked to increase the flexibility of his cost base, making it less likely that First Choice will have booked out more hotel beds than it needs or end up flying half-full aircraft if there is a sudden dip in demand. For that reason, one of the most important, and reassuring, sentences in yesterday's trading update was: "Within the mainstream holidays sector, capacity and demand for holidays were carefully matched ... resulting in margins for the year being in line with expectations."

There was reassurance, too, on trading in the months and year ahead. The winter season (not, to be honest, when First Choice makes any money) looks to be slightly up on last year in the specialist areas, and 7 per cent up in the mainstream holidays division. There are also early signs that next summer will be sunny for the group's finances again: bookings so far are 20 per cent ahead in the mainstream holidays division than they were at this time in 2003. First Choice's online operations are also growing well.

For his next tricky manoeuvre, Mr Long must navigate a consumer slowdown which, though not likely to be disastrous, could put pressure on the industry next year. He ought to be trusted to get First Choice through the clouds.

With a 4 per cent dividend, the shares are worth holding.

St James's Place is in good shape for future

With the financial services industry undergoing the biggest shake-up in its history - as it is hit by a string of new rules from the Government and its regulator - the outlook for the sector's smaller companies is beginning to look bleak. Many of the new rules, which are set to be introduced over the next couple of years, will massively favour the biggest companies while leaving the minors struggling to secure any effective distribution for their pensions and other savings products. St James's Place Capital may be the exception.

Having carved itself a niche providing advice and financial products for the wealthy, aided by a reputable brand which it supports through advertising at royal polo tournaments, the group has managed to build up a loyal client base.

With a new Government cap on the size of a pension pot, the rich are going to need more advice on how to best vest their retirement savings. And all the while, recovering equity markets are restoring confidence in saving. SJP looks in good shape to survive the wider industry shake-up.

Announcing another impressive set of results yesterday, the group revealed a 19 per cent leap in third-quarter business, continuing its strong recovery since the bottom of the bear market last year. Over the first nine months of 2004, new business was up almost 27 per cent.

In May, we rated this stock a hold, and since then its share price has continued to move sideways. At the same time, however, its sales and profits have gone from strength to strength, diluting what was looking to be an increasingly demanding valuation. Short term, there is still no reason to expect any significant upgrade in the stock, but SJP shares, at 183p, are a solid play for the longer-term investor. Buy.