Don't call time on Enterprise Inns just yet

Acambis has found the right prescription for growth; Deal-hungry Tribal offers chance to profit from public services revolution
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The Independent Online

Investors who bought in at the flotation of Enterprise Inns, the tenanted pub company, in 1995 have made back 10 times their money in dividends and capital appreciation. It'll be their round, then.

But what next? Do they want to stay for a lock-in, or should they call time?

Yesterday's annual results served only to heighten the dilemma, giving absolutely no excuse to cash in that tempting profit. Enterprise turned in operating profits (before one-offs) up 44 per cent to £293m, on turnover which reached £480.6m from £368.9m last year. It generated £119m of cash after interest, tax, dividends and capital spending.

It also remains a very well managed and fundamentally simple business, based on collecting rent from its tenant publicans who are tied to Enterprise for their beer supplies.

The big strategic question is over its long expected acquisition of the Unique Pub Company, another tenanted operator in which Enterprise has a 16.8 per cent stake. The company has an option to acquire the rest of the company from its private equity partners for £608m, which it will almost certainly exercise in March next year.

Crucially, Enterprise is a highly cash generative animal and will not have to turn to shareholders to fund the deal. Instead it will be raising about £650m in debt to pay for Unique. Once the deal is complete, Enterprise will have a freehold property estate worth about £5.5bn and debt of £3.5bn. The transaction will catapult it over Punch Taverns as the biggest tenanted pub company in the country with 9,100 pubs.

Enterprise's debt has been organised so as not to be at the mercy of rising interest rates so, although the company will be big, it is still conservatively financed. Even if sales grow at just 3 per cent a year, the company will generate earnings per share growth of 10-20 per cent. It is likely to use a combination of paying down debt, making some modest acquisitions and buying back shares to keep earnings momentum growing.

It is too soon to sell, especially as the "local" is proving its defensive worth against the rather more volatile high street. Hold.

Acambis has found the right prescription for growth

Acambis is no poxy investment. It has turned itself from a shaky biotech outfit into one of the UK life science sector's hot properties. John Brown, the feted chief executive who steps down at the end of next month, leaves behind a group which has been turned profitable by £500m of contracts to supply smallpox vaccine to a US government nervous over the bioterrorist threat.

But does it stay profitable? Mr Brown is as emphatic as ever that the US smallpox contract will be followed by others. Representatives from 40 governments attended the company's secret bioterrorism seminar-cum-sales pitch in Geneva last month, and it does indeed seem likely that other governments could build up stockpiles of their own when the Acambis vaccine gets full safety approval (it is hoped) in 2005. On top of that, there is the hope the US will pay Acambis to replenish its stockpile as batches pass their use-by date.

In the meanwhile, Acambis is pumping the cash from the US into its other development programmes and is already close to filing for regulatory approval of Arilvax, its yellow fever vaccine. There is also scope to make an acquisition to bolster the portfolio of travel vaccines.

There is the risk that Acambis may slip back into the red in 2006, if the US government decides to hold off on a decision on replenishing its stocks of the vaccine. But counter to this is the chance Acambis will win related work to develop a second smallpox drug for people with weak immune systems. Also, the arrival of a new chief executive might provide just the excuse to trim a few unexciting drug development programmes.

Even with more of the trial delays that affect Acambis just like any other drug developer, the company is a long-term winner. Buy and tuck away.

Deal-hungry Tribal offers chance to profit from public services revolution

There is a streak of impatience that runs through the Pitman family. Sir Isaac Pitman invented shorthand to speed up writing in the 19th Century. And in the 21st, his descendant Henry Pitman is rushing to create a public services giant, with a whirligig of acquisitions since the flotation of his Tribal Group in February 2001, most recently the £45m purchase of Hacas, which advises local authorities on social housing.

Tribal's "buy and build" strategy scares as many investors as it attracts, because there is always the risk of cock-ups in the integration of acquisitions and it is difficult for analysts really to get a handle on the underlying trading performance. That said, Pitman the Younger has not missed any of the City's expectations so far, even if the wild fluctuations in the share price suggest there is no clear view yet on what the company might be worth.

With four acquisitions in the period, turnover doubled and profit rose 400 per cent to £2m in the six months to 30 September. The group's businesses now stretch out from its core education market (where it runs failing schools) into IT systems development, public relations and management consultancy. The vast majority of the entrepreneurs it has bought out have stayed with the company.

Best of all, the management is trusted enough in Government circles to be allowed to run at least one of the networks of drop-in treatment centres being introduced to the NHS. With its shares, at 381p, on 17 times earnings, Tribal is an excellent way to invest in the public services revolution.

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