Budget deal makes Avis a sell

CI Traders could prove a nice little earner; Inter Link cooks up a tasty recipe for growth

Budget, one of the best known companies in car rental, had turned into a bit of an old banger in recent years, losing acceleration and finally getting taken off the road in July last year, when it filed for bankruptcy protection in the US. Yesterday, it became clear the name will live on, as the business is carved up between Avis in the US and its London-listed sister, Avis Europe.

Avis Europe is buying the rights to the Budget brand in Europe, the Middle East and Africa, for about £25m.

It is easy to see why it fancied the deal: Budget has no substantial fleet of its own, but is operated by local franchisees, who buy and service their hire cars themselves, so Avis will gain an instant royalty stream estimated at about £10m a year. It knocks out a rival for what is undeniably a bargain basement price and takes its market share to more than 20 per cent. In total, Avis and its new franchisees run 180,000 hire cars, making it the biggest player.

Yet there are reasons to be wary. Avis was unable to say when the acquisition might enhance earnings. All it could say is that in the first year, it would have to forgo earnings in order to give the Budget business a good service. There are cost savings to be had through getting better deals on servicing the fleet, but advertising Budget and sprucing up the IT will take more cash than is coming in from the franchisees.

And while Budget is more (blindingly) obviously focused at the budget end of the hire car market, the Avis chief executive, Mark McCafferty, admitted to analysts that one of the competitors a spruced up company will expect to win market share from is, er, Avis itself.

There will be better times to buy Avis shares, even though they have reached historically cheap multiples of published profit forecasts. A profits warning for the 2002 financial year, which will be down 15 per cent on 2001, may not be the last. There is little sign of a business upturn, which bodes ill for the 25 per cent of Avis which services corporate clients. And a war in the Middle East and falling consumer confidence could combine to disrupt leisure travel. Sell.

CI Traders could prove a nice little earner

There is one supermarket chain that was happy to confirm yesterday that it will not be bidding for Safeway. Le Riche, the Channel Islands' main chain of grocers, has only just gone through a (relatively) dramatic merger of its own.

Le Riche joined forces last summer with Ann Street, Jersey's big brewer, to form CI Traders, a conglomerate that is now one of the three biggest companies traded on London's AIM market.

The main attraction of the company is its rich asset backing, since many of the superstores and pubs are owned outright. Its property assets are conservatively valued at £145m, three-quarters of the company's market capitalisation. The merger will allow it more flexibility to shuffle its portfolio of outlets and convert or sell off what will now be spare warehouse space.

With the expanding Bluebecker chain of Harvester-style restaurants in the South of England and a bottling plant in France, the group is a mixed bag, to say the least. It has also proved itself opportunistic, recently selling a portfolio of UK pubs to Punch Taverns because the prices offered were "hot".

A trading update yesterday showed the continued revival of the Jersey Marks & Spencer franchise, run by Le Riche. The supermarkets are under pressure in Jersey from the one national competitor, Safeway, but in Guernsey stores have traded well.

CI Traders' sensible gearing and willingness to churn its assets and businesses stands it in good stead over the coming years. A dividend yield of 4 per cent and the opportunities from property sales could make it a nice little earner.

The mid-price was unmoved at 82.5p yesterday, with the illiquid shares being offered by market makers at 85p each.

Inter Link cooks up a tasty recipe for growth

Inter Link Foods, maker of Harry Potter and Spiderman cakes, thinks it has found a tasty buy to help its ambitions to become the UK's second largest cake baker, behind Kipling.

Malt loaves were yesterday added to Inter Link's tray of Swiss rolls, bakewell tarts and novelty cakes with the £8.4m acquisition of Soreen. A £6.1m share placing at a 15 per cent discount to the opening share price sent the stock down 39p to 297.5p. Sentiment was further soured by news that festive sales were slow. However, Christmas 2001 was such a consumer binge that this disappointment may not mean much.

The company also revealed very strong first half results. Turnover was up 9 per cent, and profits before tax were up 11 per cent to £1.3m, all baked from organic growth.

Inter Link has expanded steadily in the last four years, with new bakeries being used to widen its product range. It is a riskier proposition than some investments because it is small and has relatively high debts. However, the shares are trading on just 8 times forecast earnings. Inter Link's management has the ability and ambition to make sensible acquisitions and find new outlets for its products. The stock is one to put in the oven and watch rise.