The Investment Column: Rebranded nightclubs keep Luminar well lit up

Kazakhmys; Nichols
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The Independent Online

Our view: Hold

Share price: 744p (+8.5p)

The recovery at Luminar is now in full swing. A trading statement from the UK's biggest owner of nightclubs and late-night bars underlined this yesterday.

The group's strategy is to re-badge its estate under brands such as Oceana, Lava & Ignite, Life and Liquid and it is working well. In December, it revealed that like-for-like sales at branded nightclubs rose by 7.3 per cent. This compared with a rise of 3.1 per cent for all sites, including those awaiting rebranding. This trend has continued into the new year.

Analysts estimate that of Luminar's 125 sites, its 49 branded nightclubs generate 66 per cent of group earnings. That is an impressive statistic. As the group continues to refurbish its estate - branded units are expected to rise to 80 over the next two years - its earnings should enjoy solid growth.

Luminar bought back 3.4 million of its own shares last year, thereby returning £23m to shareholders. Given its improving performance, the return of money to investors is expected to gather pace in the years ahead. Over the next three years it is tipped to return a further £120m.

There is one snag on the horizon for the company. It comes in the form of the smoking ban due to come into effect in England and Wales on 1 July.

Luminar believes it is in a better position than pubs and normal bars - the ban might cause smokers to drink at home, but the group hopes that they will still want to go out to dance. It has neverthelessbeen making preparations for the ban by creating outside areas for smokers to use. It expects most of its outlets to have such areas before the law change takes effect. This is likely to give the group a competitive advantage over rivals.

As Luminar has slowly reformed, its shares have been re-rated. In the past year alone they have risen by nearly 50 per cent. This is certainly an impressive performance, but now is no time for investors to be looking for the exit. As management pushes on with its rebranding campaign, the stock should continue to advance.


Our view: Buy

Share price: 1,126p (+37p)

Kazakhmys' ambition is to become the "BHP Billiton of Kazakhstan". To achieve this end, the Kazakh group needs to move away from its reliance on mining copper. So, in the coming years readers can expect a slew of deals taking it into nickel, zinc, iron ore and oil.

The lack of any news on this front in Kazakhmys' full-year results statement yesterday disappointed some analysts. That aside, the figures made great reading. For 2006, the miner boasted a jump in net profit to $1.3bn from $538m in the previous year. It had the strong copper price to thank for this performance.

As part of its attempt to diversify its interests, Kazakhmys last week agreed to buy Dostain-Temir, a company with rights to explore for oil and gas in western Kazakhstan. In future it may struggle to make juicy acquisitions given the rising cost of assets in the commodities arena. But, at six- times forward earnings, a discount of over 50 per cent to the wider blue chip index, the group's shares are worth buying.


Our view: Take profits

Share price: 285p (+10.5p)

Soft drinks maker Nichols sold 45 million bottles of its Vimto cordial in 2006, 20 million bottles of fizzy Vimto and 70 million cans across the UK.

This helped the group notch up an underlying pre-tax profit of £7.4m in the year to 31 December 2006, up from £7m in 2005. Vimto also did well abroad. It is sold in 65 countries and did particularly well in Africa and the Middle East where volumes rose 6.6 per cent. In that part of the world cordial is most popular during the Muslim holiday of Ramadan. Because of its high sugar content it helps to sustain those who observe the tradition of fasting.

Nichols benefited from the relaunch of the Panda Pops range of children's drinks in April. It bought the portfolio and then re-badged it as a low-sugar range with no artificial colouring or flavouring, in line with recent trends towards healthier living.

Meanwhile, Nichols' dispensing arm showed signs of a turnaround. Over the past year the company has outsourced much of the systems side of the business - it dispenses cold soft drinks on draught in pubs and restaurants - while retaining responsibility for the supply of syrups and juices from which the drinks are mixed.

Having generated about £14m of cash last year, the Merseyside-based group looks to be in rude health. Analysts believe further acquisitions, along the lines of the Panda purchase, are possible. However, this many not be so easy any more. Private equity has been active in the sector of late and this has inflated valuations greatly.

After yesterday's rise, Nichols' shares trade at 18 times forward earnings, which is a premium to rival AG Barr. Now is not a bad time for investors to take profits from a stock which has gained 67 per cent in two years.