Bottom Line: Owners sights sunshine

A RAY of sunshine has at last filtered through the dark cloud hanging over Owners Abroad, the holiday company.

Despite the series of upsets that has plagued the group since it defeated Airtours' takeover bid, the good news is that Owners is in far stronger financial health than its limping share price might have implied.

There are not many companies that can continue to generate cash when profits take a double hammering from a price war and big exceptional costs.

A plunge in operating profits from pounds 30.4m to pounds 17.8m is clear proof of the previous management's misreading of the tourist market. It missed out on Spain's return to favour as a holiday destination and it overpriced first- edition brochures for the 1994 summer season, to name but two large howlers.

Defending against Airtours cost the company nearly pounds 5m. A further pounds 3.8m has been written off against three properties in the Canary Islands, where property values are suffering in tandem with the rest of Spain.

Given the extent of the problems, the company has justifiably reneged on a qualified promise to increase the dividend.

A maintained total of 3.5p still equates to an attractive yield of 3.6 per cent on the shares, which gained 20p yesterday to 120p.

Shareholders should not expect an increase in dividends this year. The new management still has a lot of work to do to make up the ground lost to Airtours and Thomson.

Profits of pounds 22m this year are possible, giving a p/e of 15. This is high for the sector. But with more benefits from the Thomas Cook link and profits from its Canadian operation flowing through, Owners could boost earnings by 25 per cent the following year. Buy for the long term.