The Investment Column: Indian restaurants add touch of spice to Regent Inns' outlook

Polar Capital; Dicom
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The Independent Online

Our view: Buy

Share price: 102p (+1p)

Regent Inns has seen its first-half profits slide after the shake-up in the licensing laws. The owner of the Walkabout pub chain and Jongleurs comedy clubs yesterday blamed the extension of opening hours at community pubs for keeping customers drinking in their locale for longer and arriving later at the company's high street venues.

Regent Inns has also been enforcing the Challenge 21 policy to clamp down on underage drinkers. Its doormen are asking for ID from younger-looking customers, and analysts say the company turns away 5,000 customers a week.

These factors, combined with the long, hot summer, have eaten into operating profits, and they fell to £6.7m during the six months to 30 December compared with £8.5m a year ago. However, sales picked up over the Christmas and New Year period with like-for-like sales up 3.1 per cent at Walkabout and 4.9 per cent at Jongleurs and yesterday drove its shares 1 per cent higher.

The chairman, Bob Ivell, said he is confident the difficulties surrounding the implementing of the licensing laws are over, and he is focused on developing the company's food offering before the extension of the smoking ban into Wales and England in April and July this year. Food accounts for about 8 per cent of sales, so there is plenty of room for growth.

Analysts are looking to see how successful the company can be in turning around Old Orleans, the 31-strong restaurant chain it acquired from Spirit for £27.6m last August. New menus and entertainment programmes have been launched.

Regent has also spiced up its portfolio with a £500,000 investment in an upmarket Indian restaurant franchise, Brandasia, which opened its first site, Asha's, in Birmingham two weeks ago. With the company forecasting another 50 sites across the country there is still plenty to keep investors excited.

Polar Capital

Our view: Buy

Share price: 238.5p

Polar Capital became the latest specialist asset manager to list on AIM yesterday. What does it mean by specialist, you may ask? Well, a little less than half of the $3.3bn it manages is in hedge funds which aim to make money for investors irrespective of how the wider stock market performs. The rest is invested in traditional long-only funds run by Polar - they make money only when the market is going up.

Polar has decided to float for three reasons. First, the stock-market listing provides it with a great way to incentivise its workforce. There are few better ways to get the most out of employees than to given them a stake in the company, the value of which they can be seen to increase as the business grows. This type of arrangement also makes Polar a desirable place to work, helping the group attract the best people.

Second, the float will help raise Polar's profile and make it more transparent for would be investors interested in its funds. Finally, it has allowed it to raise some fresh cash. The group raised £6m of new money at 190p which will be used as seed capital for new investment funds. Once these have built up a strong enough track record, Polar will be able to market them to investors.

Polar makes money by charging a management fee to those who put cash into its funds, along with a cut of any profit it makes for them. Therefore, the more it makes for its clients, the more profit it makes for its shareholders.

Key to growing the business is increasing its funds under management. In the past nine months alone this figure has risen 34 per cent to $3.3bn, and analysts are convinced this positive trend will continue for the foreseeable future. Pre-tax profits at Polar are tipped to come in at £6.7m in the year to 31 March 2007 and rise to £9.2m in 2008.

Even after yesterday's strong debut, the stock trades at a substantial discount to recently listed peers like Bluebay and Ashmore, which is unjustified and makes it well worth buying.

Dicom

Our view: Hold

Share price: 236p (+16p)

After a very disappointing first quarter, Dicom looks to be on the growth path once again. The software group yesterday said that it had made up for a slow start to its financial year as it reported a 52 per cent rise in interim pre-tax profits to £6m. All the orders it had hoped for at the end of its first quarter came through in the second, and City analysts expect profits at Dicom to hit £16m by the end of the year.

Dicom's software is designed to transfer information held in non-standard formats like paper to an electronic format so that it can easily be stored and processed. Its customers come from industries as diverse as financial services and healthcare and also include government agencies.

Clearly, the group operates in a fast-growing sector, but has on several occasions disappointed investors, mainly because the timing of its revenues can be difficult to predict. Nevertheless, at 18 times forward earnings, its shares are worth holding.

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