Wembley opens door to punters

Lastminute; Quarto  
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The Independent Online
Farewell Wembley, property conglomerate, one-time owner of the famous twin-towered Wembley stadium, hello focused leisure group with growing businesses in greyhound racing and US lottery machines.

Farewell Wembley, property conglomerate, one-time owner of the famous twin-towered Wembley stadium, hello focused leisure group with growing businesses in greyhound racing and US lottery machines. That was the message yesterday from Wembley, the group whose past has often looked as dodgy as a late tackle.

The group sold the stadium to the Government two years ago as part of the development programme for the new national stadium. It still owns 43 acres of land around the site, though this is earmarked for sale with an estimated value of £60m to £70m. Also due for disposal is Keith Prowse, the ticketing and events business.

This will leave Wembley with greyhound track businesses in both the UK and the US and a growing video lottery terminal operation, also in the US. All these businesses are sprinting ahead despite the weakening American economy.

The impact on the shares has been electrifying. They have now doubled in the past two years during which Wembley has also bought back a third of its own stock.

The question now is how Wembley uses the proceeds and whether the shares have run out of puff. Acquisitions are possible both in the UK and the US.

But Claes Hultman, chairman, says he can't see a better deal than buying back Wembley shares so theprocess will continue.

The results certainly bear him out. Though pre-tax profits grew 12 per cent to £16.2m in the six months to June, growth in the core businesses exceeded 20 per cent. The US profits grew despite the weakening economy.

This is perhaps the biggest cloud on Wembley's horizon. After the disposals, more than 80 per cent of its revenues will come from the US.

To take the business to its next stage, Wembley might need a further relaxation of gaming laws in America. It might also need to add more international content to its 24-dogs internet racing business.

The shares jumped another 30p to 697.5p yesterday which on full-year profit forecasts of £33m puts them on a forward p/e of 14. Hold until the old Wembley property issues are resolved.

Lastminute

Lastminute, the internet retailer specialising in cheap flights and gifts for time-pressed consumers, quickly fell from favour once the stock market turned sour. Investors who were sucked in by the hype of its March 2000 flotation must have been wondering what they had purchased.

As the company's figures showed yesterday, losses are still huge. The deficit was £43m for the nine months to 30 June on sales of a measly £11.4m.

The only redeeming feature is that at least all the numbers are going in the right direction. Sales rose around 8 per cent in the third quarter from the second quarter, gross profits were 7 per cent better and the gross margin rose to 14.1 per cent from 13.9 per cent.

Customer conversion rates have increased to 12.4 per cent, up from 11 per cent, and its advertising and sponsorship revenues have remained at around 25 per cent of gross profit.

The company still has £53m of cash which should be just about enough to see it through to profitability.

But that will be small comfort to those who paid the 380p IPO price last March and now hold shares worth 34p each.

The company's market value is only £58m, showing that the market is still not convinced by the company's proposition.

Analysts predict losses of around £40m this financial year and expect the whole company to be profitable in early 2003.

This might look encouraging. But Martha Lane Fox and colleagues cannot afford any slip-ups and in these market conditions, there is surely no hurry to buy the shares.

Quarto

Quarto has the look of an interesting stock market tiddler. It specialises in the publishing and marketing of illustrated books. It also produces decorative prints, an area which is now breaking even following two years of losses.

Interim pre-tax profit gained 15 per cent to £941,000, while sales inched ahead 0.7 per cent to £30.2m.

Quarto's business is weighted to the second half. But unlike so many companies these days, Quarto has earnings visibility of up to four months since it operates with a lengthy forward order book.

As a defensive play amid a possible slowdown in consumer spending, Quarto has merits. With enterprise value of £40m and operating cash flow forecast of £6m for the full year, the company stands on a low enterprise value to EBITDA multiple of below 6.

What's more, a total dividend of 4.5p (combined with strong cover) gives the stock a prospective yield of 5.6 per cent. As a small-cap opportunity offering some stability in turbulent markets, Quarto, unchanged at 80.5p yesterday, is appealing.

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