The Investment Column: Luminar is an alluring target

London Capital Group; Invu
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Our view: Hold

Share price: 574.5p (+1.5p)

Things are looking up for Luminar, Britain's biggest nightclub operator.

Its key dancing division delivered higher sales in August and the first three weeks of September, although group sales are still falling. Core businesses suffered a 2.4 per cent drop, which is still an improvement on the 8 per cent fall Luminar saw in the spring.

The company wants to focus on its big dancing-led venues under the Oceana, Lava & Ignite Life and Liquid brands and is thought to be inching closer to offloading its struggling Chicago Rock Café and Jumpin Jaks bar chains to TDR Capital for about £90m.

That may kick-start Luminar shares and raises the prospect of a further return of cash to shareholders, on top of the £70m share buyback already announced.

The group has been hard hit by the new licensing laws - with pubs staying open longer, many people carry on drinking beyond 11pm rather than move on to a nightclub. The World Cup in Germany and the hot weather have not helped either.

But while trading remains tough, the chief executive, Stephen Thomas, is steering Luminar towards recovery, making the business an attractive takeover target.

Mintgate Investments, a consortium made up of the property and retail entrepreneurs Robert Tchenguiz, Tom Hunter and Nick Leslau, walked away after expressing an interest in Luminar in the spring, but retains a 6 per cent stake in the group and could return. Interest from private-equity players is also thought likely.

Luminar should weather next year's nationwide smoking ban better than the pub and bar chains. Smokers may choose to drink at home, but Luminar hopes that they will still want to dance. Investors should hold on to their Luminar shares for now.

London Capital Group

Our view: Buy

Share price: 117.5p (+1p)

Turbulent stock markets may have given private investors sleepless nights, but they are manna from heaven for spread-betting companies, who thrive on volatility.

Take London Capital Group, the people behind Capital Spreads. Yesterday, LGC unveiled a 52 per cent rise in sales to £3.5m in the first six months of this year.

Profits before tax surged 385 per cent to £1.7m, although this startling improvement is flattered by a £400,000 dividend paid to the group's previous owner last May that depressed interim profits in 2005.

Capital Spreads has 7,500 clients, against 2,850 just over a year ago, and is signing up about 300 a month.

They are drawn to some of the tightest spreads in the market, which the company is able to offer because of its low-cost, almost exclusively online model.

Spread-betting may be the engine room of LCG's impressive growth, but other parts of the group are pulling their weight.

Its institutional foreign exchange business is turning over $1bn (£526m) a day, with little marketing by LCG. Its derivatives trading arm may not be expanding, but it gives the group access to cheap hedging for spread-betting positions.

The shares edged 1p higher yesterday, valuing LCG at £45m. They are trading at about 11.2 times expected 2007 profits, a 45 per cent discount to the much bigger rival IG Group.

Taken with LCG's promise to pay a dividend with the final results (provided the business continues to do well) and its attractions to bigger players in a consolidating industry, the shares look well worth a flutter. Buy.


Our view: Buy

Share price: 33p (-0.5p)

Invu, the document management software developer, has come into view after signing a distribution agreement with Sage.

The larger software developer has endorsed Invu's latest product and will sell the software into its large accountancy customer base and potentially to its 600,000 UK customers. Alongside similar deals in south-east Asia, the partnership could kickstart some serious sales growth.

Invu's software allows customers who receive thousands of paper invoices each day to automatically scan and file the documents electronically. Like Sage, it focuses on small businesses but also counts Siemens and Chelsea FC among its clients.

The market for such software has grown in recent years as companies look to increase accounting transparency and also to use the customer information lying dormant on e-mails and servers. It could prove a real growth sector if the likes of Microsoft, Sage and SAP start to bundle the product into comprehensive desktop software packages tailored for small-business needs.

Invu recorded 23 per cent revenue growth in the first half and 29 per cent growth in profits before tax. Yet the numbers are still small and although the company points to a strong second half, there is still a lot of expectation built into the share price.

At 33p, its shares trade at less than 20 times projected earnings, which is a discount to other focused software plays. Should the Sage partnership pay off, profits ought to gain traction, making the shares a good bet at this level. Buy.