Luminar lacking sparkle

A little Imagination may pay off; Marlborough Stirling is one to avoid

As founder and chief executive of Luminar, the country's biggest nightclubs operator, Steve Thomas deserves his reputation as Britain's Mr Disco. But tougher times on Britain's high streets has meant even he has struggled to keep the nation dancing during the past few months - as yesterday's full-year results showed.

Two profit warnings have left Luminar's investors feeling rougher than a student clubber after a night on the snakebites-and-black. The shares have shimmied down from a 12-month high of 929p, closing 1p lower at 384p yesterday. The double whammy of tuition fees for students (leaving revellers with less money to spend because their parents were suddenly footing the bills) and the threat of redundancies (blighting nights out in the week for the company's out-of-college contingent) caused Luminar's like-for-like sales to turn ugly.

They fell by 6 per cent in the second half of its financial year. The lack of sparkle in yesterday's figures - profits before tax fell for the first time in the group's 15-year history - has apparently mirrored a lack of sparkle in some of Luminar's older clubs.

The group owns some 300 nightclubs, theme bars and restaurants and is busily adding back missing glamour to the shabbier of its sites. The strategy is working: the 15 clubs revamped so far have seen sales shoot up by more than 30 per cent. A review of the whole estate is continuing, with an eye to upgrading some of its 150 unbranded clubs to one of its tried-and-tested formats. These include Chicago Rock Café, Liquid and Oceana.

Pre-tax profits before goodwill amortisation for the year to 2 March fell 4 per cent to £66.6m on turnover up 9 per cent at £392.4m.

Although the forward price/earnings rating is undemanding, at 6, there is little that suggests the shares will start dancing any time soon.

A little Imagination may pay off

Imagination Technologies has come a long way over the last 18 months. The computer chip designer was a favourite in the tech boom but at the time it was a one-trick pony with its games chip. Now the company has other products to offer and, though it is loss-making, it is a far more interesting prospect.

Yesterday it reported a slightly increased pre-tax loss of £5.6m for the year to March, on revenues 45 per cent up at £19.6m. Within that, research and development came in at a hefty £12.9m, up £2m.

But Imagination is all about a bet on the future, so these numbers should not be the focus. The company spotted the potential of digital radio early and has manufactured its own set, which has sold well. Its digital radio chip goes in almost all such radios sold in this country.

It is also developing chips for digital TV, car navigation systems and mobile phones. Its technology seems to be genuinely leading-edge, with giants in the field such as Intel and Texas Instruments licensing its chips.

The stock has become a retail punters' favourite in the last year. The shares, up 0.25p yesterday at 37p, are difficult to value. HSBC, the house broker, does not expect a pre-tax profit until 2005. But there are good reasons for showing faith in Imagination Technologies.

Marlborough Stirling is one to avoid

Marlborough Stirling, the software company, has had a difficult year after its customers - insurance companies - reined in their IT spend and its major outsourcing contract went awry.

But Marlborough was able to tell investors that current trading was at least "reasonable" and second-half earnings would be stronger than first. The cash crunch on insurers that halted technology spend last year may also become good news for Marlborough. Many companies have closed their books to new business to conserve capital and are now looking to offload their administration.

Marlborough has yet to clinch a major long-term contract. Its online quotation portal for financial advisers is set to expand as advisers and insurers seek to cut costs, but it will be 2004 before any extra revenues are delivered.

The business is still in considerable discomfort and while the outlook for outsourcing opportunities looks good, there is still a lag on new sales.

Shares closed down nearly 12 per cent yesterday at 30p and the stock is trading at around nine times its forecasted earnings.

Marlborough may look cheap, but it is still a long way from any upside. Avoid.