Investment Column: Whitbread yet to show us the beef

Rise in IPOs makes Dealogic worth a look; Buy ship broker Braemar as economic tide rises
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The Independent Online

Beefeater, the venue for Middle England's family Sunday lunch and part of the Whitbread pub, restaurant and hotel empire, is 30 years old this year. And to celebrate, the pub/restaurant chain is being revamped. Sales are up 30 per cent in the new outlets so far.

This contributed to a 13 per cent rise in annual profits at the Whitbread leisure group, marking its sixth consecutive double-digit earnings report on the trot. The shift out of brewing to concentrate on restaurants and hotels is paying off in profit terms but it will take more Beefeater-style revamps to really drive this business forward. At this point, only the David Lloyd Leisure fitness clubs are achieving the desired 5 per cent annual sales growth.

Whitbread sees itself as catering for people's everyday lives, where there is no time to cook or make your own coffee in the morning. So it has a glut of familiar brands - Costa Coffee, Pizza Hut, Brewsters, Travel Inn, TGI Friday. Eating out on the high street is more popular than ever, sending profits up 33 per cent in this division over the year to 29 February.

Budget hotels are also proving to be big business. Alan Parker, due to take over as chief executive next month, is seen as a hotels man, and a growing focus on hotels at Whitbread is expected. It is vying for the Premier Lodge hotel chain but with an auction price already north of £500m, the management must not overpay.

Whitbread says its "everyday" focus protects it from a downturn in consumer spending. But a big chunk of the group is Marriott Hotels, a luxury brand that is struggling because of the well-known problems in the tourism market. At least turnover at Marriott is now improving, and the imminent sale of some hotels (it will carry on managing them) will reduce the costs and the risks of the business.

Whitbread is yet to fire up all cylinders but there is potential here. Hold.

Rise in IPOs makes Dealogic worth a look

Dealogic software was used last year in 80 per cent of the world's $100m-plus initial public offerings. The technology allows investment banks to communicate with one another when marketing share issues, ensuring that the deal is priced correctly. It is complicated software for use in complicated deals.

It wasn't needed for the flotation of Dealogic itself. Cazenove, its broker, has organised a small share placing (on behalf of the three founders, who are picking up a second fortune after having also floated Computacenter in the 1990s) and it has all gone like a dream. Priced at 220p, the top end of the range, institutions were swapping the shares at 230p by the end of yesterday.

Private punters will have the chance to buy in next week, but should they? They will be paying a full price, as the shares are trading at more than 30 times the 2003 earnings. But the multiple falls to perhaps 23 times this year and to below 20 times in 2005.

No firm earnings forecasts are published yet, so this is all tentative stuff, but Dealogic gets some of its income from deal-related fees. As fund raisings for acquisitions and flotations increase in number in these more optimistic times, extra fees should flow to the bottom line.

On top of this, Dealogic is launching a new suite of internationally compatible products which, while upping the risk profile a little, also increases the potential rewards.

Buy ship broker Braemar as economic tide rises

A rising economic tide lifts demand for boats. Tankers, container ships, cargo ships. All of them have been able to charge higher prices as the booming Chinese economy has demanded more and more imports of raw materials. And the shipping broker Braemar Seascope, which finds ships for businesses with cargo to transport, has enjoyed a surge in profits after a few years in the economic doldrums.

Pre-tax profit was £4.1m in the year to 28 February, Braemar said yesterday - up from £3.5m the year before. The company has opened new offices in Shanghai and, most recently, in Beijing, so it ought to do even more new business in the giant country in the current year. The secondhand market for ships, in which Braemar is also involved, is buoyant, too, with some big invoices coming in over the next few months.

Freight rates have come off their highest levels now, it seems, but they will stay high for some time to come. Braemar has the added solidity of future contracted orders, in part for ships still being built.

Don't dismiss Braemar's recent run as a speculative one based on investor demand for all things China-related. Its shares, at 262.5p, are valued at below the market average and yield 5 per cent. Buy.

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