<preform>The Investment Column: Hotels group M&C is poor value</preform>

Give Ultraframe benefit of doubt after dire year; ATM business Scott Tod is set for clear growth
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The Independent Online

The Hotel group Millennium & Copthorne (M&C) pocketed about £19m from the sale of a hotel and shopping complex in Australia yesterday. Held through a subsidiary of a subsidiary, it was clearly a non-core asset. The money will be used to pay down debt and boost working capital.

The Hotel group Millennium & Copthorne (M&C) pocketed about £19m from the sale of a hotel and shopping complex in Australia yesterday. Held through a subsidiary of a subsidiary, it was clearly a non-core asset. The money will be used to pay down debt and boost working capital.

But with a rival hotel group, Intercontinental Hotels, recently announcing the sale of billions of pounds of assets, returning buckets of cash to grateful shareholders, all eyes are now on the rest of the hotel sector and whether others will follow suit. Should M&C be gearing up for a more substantial asset sale, or are its assets, well, its best asset?

The first half of 2003 represented one of the worst for the hotel sector. The war in Iraq and the outbreak of the Sars virus coincided, leaving hotel rooms the world over standing empty. A slight increase in trading from these low numbers makes for a major recovery, and M&C announced in August that it had swung back in to profit and revenues per room were improving, particularly in London and New York. But the Hilton Group was recently more cautious on the recovery, so questions still remain as to how much further the sector will rebound.

Intercontinental Hotels has decided not to own expensive hotel assets, believing it will make more money from contracts to manage hotels and from its brands. It is selling nearly £2bn of hotels, returning £1bn to shareholders. This use of capital has been well received in the City, which is now awaiting the outcome of a strategic review from M&C's new chief executive, Tony Potter. He will report in February, but is considered unlikely to start a major asset sale, sticking instead to selected disposals, such as the recent sale of the iconic Plaza hotel in New York.

It will remain, then, a property play, linked to the economy of global tourism, and at 333p, trades well below its net assets of more than 500p a share. On this level it looks cheap, but it may not be creating much value for shareholders. Check in elsewhere.

Give Ultraframe benefit of doubt after dire year

Time was when people saved up for years for a conservatory and installed one as a luxury feature. That over-50s market has, however, been decimated, according to research undertaken for Ultraframe, the conservatory roofing manufacturer. The greying population is too worried about pensions or, if they do have spare cash, older people are finding other things to splash out on.

It means that the conservatories market has tilted instead to a much younger age group, who want an extra room for their home as a functional add-on but are prepared to pay much less for it.

This changing demographic has proved a major headache for Ultraframe, which was at the higher end of the market.

Following a profits warning in August, a trading update from the company yesterday assured the market that conditions had got no worse. The company has developed a new product range for the new lower, much more competitive, end of the market and it is also developing new distribution channels, such as builders merchants and DIY outlets.

The company's shares, at 75p, have fallen from 273p over the last 12 months and trade on a forward multiple of 9. It is worth giving a chance to the new strategy. Hold.

ATM business Scott Tod is set for clear growth

Anyone who is prone to the odd trip to the pub could not have failed to notice the proliferation of cashpoints popping up next to the fruit machines over the past few years - or, for that matter, the explosion of ATMs in convenience stores.

Whilst these machines will charge you anything up to £2 to simply let you get your hands on your hard-earned wages, their viability comes from the convenience factor. If your local pub doesn't do cashback, and the nearest ATM is half a mile away, then the £1.50 charge seems just about worth paying - something which the AIM-listed Scott Tod is learning quickly.

Having started out making change machines for arcades more than 25 years ago - breaking down punters' £5 notes into 10p pieces to insert into slot machines - Scott Tod soon realised that whilst plenty of money was passing through its machines, it was making very little.

After moving into cashpoints three years ago, however, things have gone from strength to strength. Unlike its change machines, where it would benefit only from a one-off payout each time it sold a unit, its pub and convenience store ATMs provide a constant stream of income.

Furthermore, the market for convenience cashpoints is growing exponentially. Since the end of 2002, Scott Tod has increased its number of ATMs from less than 500 to almost 2,000. Over the coming two years, this market is forecast to add 10,000 ATMs.

Although the company's shares, at 64.5p, trade on an ambitious 46 times this year's earnings, there is a clear growth story for the next few years at least, which is all but certain to multiply group profits. Buy.

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