The Investment Column: WH Smith is well into its journey but still has far to go

Equest Balkan; Silverjet
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The Independent Online

Our view: Hold

Share price: 349p (-26p)

WH Smith is two years into a recovery programme - and it shows. The group, which this summer returned to its Victorian retail roots by demerging its news distribution arm, grew its pre-tax profits by one-third last year to £51m before £8m of exceptionals.

Kate Swann has done a good job since being left to man the tills after Permira walked away from its attempted bid last year. She has refused to let haemorrhaging like-for-like sales alarm her (down 7 per cent at its core high-street chain) and instead focused on cutting £22m of costs and improving margins by sourcing from China.

She is refocusing on the core categories of stationery, books and cards and reducing space for entertainment items. She has dabbled with new formats such as standalone book and stationery outlets, and is testing stores in motorway service stations. The travel retail arm, which grew its like-for-like sales by 3 per cent last year, remains the untapped star, and is expanding into regional airports and more train stations.

For now there is still more to go for on both costs - another £15m of savings was promised yesterday - and margins. But the well will run dry eventually. The shares are pricey, so are no more than a hold.

Equest Balkan

Our view: Buy

Share price: 107.75p (unch)

There is money to be made from Balkan property. The fact that Bulgaria and Romania, two of the region's bigger economies, will join the European Union in January (Greece has been a member since the 1980s) only adds to its desirability.

There are now over half a dozen AIM-listed companies looking to get a foothold in the region where property yields can be as high as 10 per cent. Among them is Equest Balkan Properties. Having raised £140m from its 100p-a-share IPO last year, it has now fully invested these funds. Yesterday came news of the purchase of a 40 per cent stake in Glorient, a Bulgarian retail warehouse and property development company, for £20m.

Glorient owns a portfolio of 16 retail warehouses, totalling 83,000 square metres in area. All these stores are let to Technomarket, Bulgaria's leading electronics retail chain. Glorient is also developing a 14,500-warehouse scheme for the German retailers Billa and Praktiker in the country.

The great thing about Equest, which is primarily focused on commercial property, is that it buys assets for which it has tenants already lined up in advance. It avoids speculation - it does not make purchases and then hope that it can find someone to rent the site, as many do.

Equest has teamed up with Technomarket to help drive the expansion of the retailer's network of retail warehouses in Serbia. Such a strategy helps to reduce the risks associated with investing in Balkan property. Having a diverse portfolio also helps. Equest own a hotel in Sofia, Bulgaria's capital, and shopping centres in both Bulgaria and Romania.

Nevertheless, investing in the region is not for the faint-hearted. Corruption is rife and, although fewer and fewer business disputes are settled by the gun, court cases can take many years to be resolved. Saying that, Bulgaria and Romania are no more corrupt than Italy, which was one of the founding members of the European Union.

Meanwhile, Equest boasts a solid management team with extensive business experience of both the Balkans and of the West, making them less likely to get fleeced than a group of UK entrepreneurs starting out in the region anew. Based on its 100p launch price, Equest is targeting a dividend yield of 7.5 per cent. It looks to be right on target to meet this.


Our view: Worth a punt

Share price: 130p (+9p)

Silverjet hopes to offer transatlantic business class air travel at a third of the price of rivals. The start-up, which is in the process of securing three Boeing 767s, aims to fly passengers from London Luton to Newark Liberty Airport - New York. Its first scheduled flight, announced yesterday, is due for Thursday, 25 January 2007.

Silverjet planes will have 100 inclined flat beds (as opposed to the 270 seats usually found on a 767) and passengers can expect high-quality catering and greatly reduced check-in times. A return to New York will cost £999 on average - it costs £3,000 with a competitor. For an extra £400, a helicopter transfer from central London to Luton airport is available, meaning an executive can go from his desk to being on a plane bound for the States in one hour.

Now for the economics. It costs Silverjet £65,000 to fly one of its planes to New York and back. The service breaks even after it has sold 65 return tickets. Every place sold after that is pure profit. By December of next year, it hopes to have three planes in service, and brokers expect the group as a whole to break even in the middle of 2008.