The Investment Column: Volatile Regus is a touch too risky right now

Whatman is a hold until benefits of DNA purification business are clearer
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It is no modest achievement. Regus now runs 750 centres in 300 cities across 60 countries. He was right to identify that so many businesses need temporary accommodation, whether it be a multinational with a particular project on the go, or a start-up company with rapidly changing needs.

But Mr Dixon did not get it right first time and the company came pretty close to collapse after the dot.com mania ended, taking many of Regus's most lucrative tenants with it. The lessons learnt are these: Regus must rent its space on much more flexible terms, so that if sub-letting demand does collapse, it can downsize quickly; larger numbers of long-term tenants, while less lucrative, make for a more stable business; and joint ventures with property owners, where Regus sometimes only manages the hi-tech facilities, are best of all.

Regus has applied these lessons and rewarded our tip of the shares as a speculative buy at 75p last year. Yesterday's interim results showed strong cash-generative growth - but they actually damaged the company's chance of a full rehabilitation by the City.

Firstly, there was a worse-than-expected loss at the UK arm, which is now 58 per cent-owned by a venture capital partner. Secondly, Mr Dixon is opening new centres at a great rate, particularly in the fashionable economies of China and India. The costs of kitting them out will weigh heavily this year before enough tenants move in to make them profitable.

The market needs to weigh short-term downgrades against longer-term upgrades, one bullish broker said yesterday. The trouble is, with Regus's chequered history, short-term downgrades are very important. They are another example of the company not quite doing what the City was led to believe.

With this volatile share dominated by speculative traders and not notably cheap on 15 times next year's guesstimate of earnings, you are safer out of it.

Large mergers of fund management houses very rarely turn out to be a success. Such is the importance of stability to both their managers and clients, that the unrest often prompts a period of poor performance followed by an exodus of clients - unwinding the gains from any potential synergies in the deal.

Such has seemingly been the tale at F&C Asset Management which, since its merger with Isis last year, has found itself struggling to hold on to its customers.

Reporting its interim results yesterday, the group showed yet another net outflow of institutional funds - a fact which its chairman, Robert Jenkins, attributed mainly poor investment performance. This seems inextricably linked to the merger. F&C laid off some 340 staff as a result of the deal, including dozens of fund managers. Even those who were lucky enough to keep their jobs would have spent weeks unsure of the outcome - keeping their eye on other opportunities.

Yesterday's news that its chief executive, Howard Carter, is preparing to leave in January provides yet more uncertainty for F&C's investors - and while this may well bring a necessary breath of fresh air to the group, it appears things may still have to get worse before they get better.

With the group conceding yesterday that the loss of its contract to manage Resolution Life's assets is set to cost it some 10 per cent of its revenues, prospects for the second half of 2005 are not great.

Existing investors that have held on this far should sit tight in the expectation that fortunes will eventually turn, but there are far better options for those in search of exposure to this sector. Prefer Schroders.

To lose one chief executive may be regarded as fortunate. To lose a second revealed his appointment to be carelessness. To lose a third, well, that is starting to invite ridicule.

The jokes would be unfair, though, particularly since Bob Thian's chairmanship of Whatman has been marked by something much more significant than the firing of two chief executives and the decision of another to take a more lucrative private job at the last minute.

It has been marked by a dramatic improvement in the efficiency of a business that had lost its way. Whatman is a specialist in filters, making the throwaway blotters, membranes and the like used in laboratory and factory tests across an array of industries.

Sales disappointments have accumulated since we switched our stance from buy to hold a year back. They have so far been outweighed by extra cost savings from an acquisition, and a new chief executive (whose appointment is "days, not weeks" away) ought to put the focus back on sales performance.

The shares, though, have not become cheaper and - at 264.5p, with a dividend yield of less than 2 per cent - will remain a hold until the potentially exciting growth prospects for its DNA purification business can be quantified.

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