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Business Comment

Ebookers has edge on lastminute

Risks too great to take a bite of Greencore; Moss Bros fails to suit while retail looks so risky

Not even the latest war talk can dampen the spirits of Martha Lane Fox. The vivacious managing director of lastminute.com reckons the online retailer could benefit from an Iraqi skirmish, as nervous travellers choose the group's late offers on airline tickets and hotels over traditional offerings.

Lastminute has booked a ticket into the black for 2003 and is forecast to post a maiden annual profit (before tax and goodwill) of £11.5m. But the money is not in the bag. It will need more than just enthusiasm if it is to cruise through the turbulence of war at anything like maximum altitude.

For a start, news from yesterday's first-quarter trading figures was not unequivocally good. There was a rise in the money flowing out of the business and delays to achieving cost-cutting targets from the acquisitions it made last year. Sceptics fear lastminute still carries a flame for the cash-burning days of the dot.com era. Operating cash outflow (before exceptional items) in the three months to 31 December was £7.4m, up from £3.8m a year earlier. Its pledges on cost savings now need close monitoring.

More happily, the group converted more "lookers to bookers": 26 per cent of visitors to the site bought something, up from 16 per cent a year ago. The October-December quarter is usually weak, with fewer people holidaying, and the number of items sold fell to 570,000 from 634,000 in the previous month but the total value of goods and services sold, £87m, beat the market's expectations.

Investors have lapped up Ms Lane Fox and co's hard work of the past 12 months, and lastminute's shares enjoyed the sharpest ascent in the FTSE All Share index in 2002, rising almost 250 per cent. But in terms of reputation, the bods at its arch rival ebookers still have the edge, thanks to an obsession with keeping administrative costs low. Lastminute shares, down 4.75p to 92p, deserve their growth rating and the group will undoubtedly prosper, but ebookers (up 11.5p to 316.5p) is cheaper relative to earnings and looks the better pick.

Risks too great to take a bite of Greencore

The buttering, filling and packing doesn't stop. Night and day, outside Worksop, Nottinghamshire, some 2,000 people are at work making sandwiches that will turn up in the supermarkets, corner stores and petrol station forecourts of Britain. Behind the activity, an Irish company, Greencore.

As well as being the UK's largest sandwich maker, Greencore produces sauces, readymeals, cakes, pizza toppings, sugar and bread. Perhaps the only thing it has not become expert at making is consistent earnings growth on behalf of its shareholders.

We wrote on Greencore last May and advised waiting for evidence of profit growth before jumping in. The prospect for the year to September is one of flat earnings only and 2004 is still too early to call, so the shares have drifted from 205p in May to 168.5p yesterday. Now the risks to the share price are, if anything, greater. The food sector has suffered a derating in recent months that Greencore, because it is less well covered in the City, has largely escaped. Its shares could be vulnerable to perceived disappointments.

Yesterday's trading update did not change the picture much. The chilled convenience foods business – including sandwiches – has started the financial year well; the bread business is still cut-throat and suffering overcapacity. On eight times earnings and with a 5 per cent dividend yield, the shares are not the most attractive in the food sector. Avoid.

Moss Bros fails to suit while retail looks so risky

Is a viable long-term business emerging from the chaos at Moss Bros? The formalwear retailer, still controlled by the Moss and Gee families, has struggled to come to terms with the modern world and its obsession with dressing down. It has also suffered from operational incompetence: it ran 150 stores as 16 different chains with names ranging from Savoy Taylors Guild to Blazer and, for an ill-fated few months, Code. Under Andrew Knight, chief executive since last March, it is focusing on just three, including Cecil Gee for label-conscious twentysomethings and the UK's Hugo Boss franchise.

A trading update yesterday showed sales have recovered a little from their depressed levels, with like-for-like growth of 4 per cent in the 26 weeks to 25 January. Best of all, excess stocks are being whittled away and the debt-free group was "strongly cash positive".

Perhaps, though, this is the high water mark. It is not clear who the main chain, Moss (in a last twist, it has dropped the Bros), is aimed at. Mr Wright's answer – the "style-conscious but not fashion-conscious" gentleman – sounds clever, but what does it mean? After years of neglect, many stores need a major refit that isn't going to come cheap. And with the UK consumer looking shaky, the retail sector as a whole is risky.

The shares, up a penny to 40p, already take recovery for granted and should be avoided.