The Investment Column: MyTravel still has a way to go

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The Independent Online

When MyTravel's £800m debt-for-shares deal was signed and sealed just before Christmas, there was a temptation to cry that the UK's biggest tour operator was "back from the brink".

When MyTravel's £800m debt-for-shares deal was signed and sealed just before Christmas, there was a temptation to cry that the UK's biggest tour operator was "back from the brink". Certainly, the threat of bankruptcy has receded, but this financial restructuring is just the start. Management has to hack its way through a thicket of costs (aircraft, staff, hotels signed up for whole seasons) before it can be certain of reaching a financially viable business.

The package tour operator of the future is one which can book up hotels and lease aircraft on the most flexible terms possible, one which can adapt to the ups and downs of consumer demand quickly enough to avoid being left saddled with the costs of unfilled seats and rooms. First Choice Holidays is already a tour operator of the future. MyTravel could still find that it does not have the cash to pay for the vital cuts (which could well include redundancies or payments to get out of onerous liabilities), let alone to invest in future growth.

The shares are already on the menu for the gambling fraternity and those with cash they can afford to lose are buying the cheaper of the two classes of shares (the 'A's, which trade currently at an inexplicable discount). Profits have already been restored in MyTravel's Scandinavian and North American businesses, so the management is establishing its credentials, they say. If everything goes according to the business plan agreed with the creditors-turned-shareholders, the current share price could well be justified.

But consider these additional issues. UK consumer spending looks to have peaked and MyTravel could be looking to reverse losses in its core UK market just as demand turns down. The future of the package holiday itself is still being redefined by budget airlines and internet booking. And terror attacks along the lines of 11 September 2001 continue to be a threat.

Though the possibility that you might be getting in at the bottom is tempting, MyTravel shares cannot, at this stage, be responsibly recommended.

Domino's Pizza should be a tasty long-term bet

The idea of jamming two pizzas on top of each other to make a double-decker and calling it Double Decadence has generated unprecedented sales for Domino's Pizza, the home delivery fast food firm. Leslie Nielsen of Naked Gun fame has been fronting the successful advertising campaign.

The company (that is, the London-listed UK and Ireland arm of what is a global franchise) brought another set of tasty trading figures out of the oven yesterday. Sales in the six weeks to 2 January were up 13 per cent on last year, it said, even before adding in the effect of 40 new stores in 2004.

Domino's reckons it can stretch to 800 stores before the two nations' appetites are sated, which means there is much growth still to come. So far, there are only 357, operated mainly on a franchise basis. The coming year is likely to be dominated by City worries over whether the pace of expansion can be kept up. There is genuine concern that planning changes might gum up applications for new store openings. It might also be that, after the Double Decadence launch pushed sales growth to 6.6 per cent for 2004 as a whole, 2005 might prove a slower year.

However, investors who can look through all this to the growth available in the future will still find the shares palatable. After all, aren't we increasingly too busy or too lazy to bother cooking for ourselves these days? We have always been a fan of Domino's shares and believe that, although the share price growth from here will be more modest, they are worth owning for the long-term.

Enterprise can maintain its solid success story

Enterprise has been one of the stars of AIM, the junior stock market. A founder member in 1995, the little maintenance company has used AIM's flexible rules to make a string of acquisitions that have taken it into new industries and then, as a fully rounded support services company with myriad business opportunities before it, it finally transferred to the main market in November.

The company does maintenance work for utilities such as Thames Water and BT, which are still looking to outsource more of these blue-collar tasks. Even Enterprise doesn't do the work itself, using a network of contractors. It makes its profit because of the quality of its management systems, which can easily identify more efficient ways of working. It also works for the public sector, planning road maintenance and gardening, as well as some limited white-collar management consultancy work.

Only the share price graph might make you consider locking in profits. In fact, the growth can continue organically, and there is no sign yet of any pressure on margins, which would be a warning sign. A trading update yesterday was short but sweet, everything tickety boo.

Investors can be expected to start demanding an improved dividend (yielding a miserly 2 per cent currently) but the price-earnings ratio of 14 is a fair price for a solid company.