Whitbread looks fairly valued

SSL International should be avoided in the short term and the long term; Body Shop offers a sweet scent of recovery

The City has given Whitbread a hard time since the leisure group bid goodbye to its heritage by selling its brewing and pubs businesses. Where David Thomas, the chief executive, saw growth potential from leisure brands guaranteed to appeal to today's consumer, the City saw a hotch-potch of concepts, half of which hailed from over the pond.

Two years on and the picture is a little different. Some of the legendary zeal from Whitbread's chairman, Sir John Banham, seems to have rubbed off on his charge and the group is no longer the also-ran of the UK leisure scene. Yesterday it clocked up its fourth successive set of reasonable results, despite the handicap of relying on hotels for half of its profits.

Fans of the stock applaud Travel Inn, a budget hotel outfit, and David Lloyd Leisure, an upmarket heath and fitness group. On the pub restaurant front, they like Brewers Fayre, a kiddy-friendly chain of eateries, for serving up tasty underlying sales growth of 5.2 per cent. Even Marriott, the four-star hotel chain that comes under the Whitbread banner in the UK only, gets a positive mention for outperforming the turbulent hotel market. Stringent cost cuts after the 11 September attacks meant Marriott managed to post flat operating profits during the past 12 months – no mean feat.

Those less gushing about Mr Thomas et al point to Beefeater, the outdated steak house that is only now being given a makeover. They also quibble about the long-term growth prospects, citing the difficulty in doubling the David Lloyd Leisure estate to 100 (these are big clubs looking for permission to open in well-to-do suburbs) and the limitations of Marriott.

The group reported pre-tax profits for the year to 1 March of £202.8m against £7m the previous year (which was skewed by a massive write-down on the sale of its Pelican restaurant group). Underlying profits rose 14 per cent.

After a strong run, the shares, up 9.5p at 610p, look fairly valued. Hold, if only for the 4 per cent dividend yield.

SSL International should be avoided in the short term and the long term

SSL International has gone beyond a smutty joke. The maker of Durex condoms has issued so many profit warnings that when a trading statement doesn't lead to downgrades, the shares jump 8 per cent.

It is hard to see SSL as an attractive investment proposition in the short term or the long term, though there may be a period in the middle where it is worth chasing. For now, the group is focused on the disposal of its hospital gloves and scrubs business, where margins are high but sales are falling. Some hope the sale can raise £275m, but that may be tough since health authorities are beating down the prices of surgical gloves.

The disposal also means group margins will be lower in future and profitability that bit harder to grow. That opens the question of how attractive the remaining condoms and Scholl footcare business will be as an investment proposition, and the answer – despite the undoubted marketing expertise of the chief executive, Brian Buchan – is not very.

It is a shame the current management, installed after dubious marketing practices were uncovered in 2001, has taken so long to get a grip on costs (and there was another disappointment on margins in yesterday's trading update). Any medium-term pick up is dependent on the success of Garry Watts, the finance director, who is on a mission to cut costs from the the flabby European distribution network. Until there are signs of a breakthrough, the shares (up 16.5p to 217.5p) are to be avoided.

Body Shop offers a sweet scent of recovery

Body Shop International has not been the most fragrant of investments over the years, what with over-expansion around the world and poor retail disciplines in the stores. With bid speculation having faded, the hope now is that the newish management in the shape of Adrian Bellamy and Peter Saunders can make the business a force once more.

Yesterday's results showed that Body Shop is moving in the right direction. After one-offs, profits were flat and like-for-like sales fell 1 per cent.

Mr Bellamy and Co have been spending the past year trying to get the retail basics right with better products, better availability and better service. Capital expenditure has been cut and debt halved.

The UK and US markets have been difficult, with underlying sales and profits down in both cases, but there were better performances in Asia and Continental Europe.

Product innovation is starting to have an impact with an expanded Body Butters range. By the end of the year Mr Bellamy hopes the restructuring will be complete and sales will start to grow again.

Seymour Pierce is forecasting current year profits of £28m. With the shares up a ha'penny to 90p they trade on a forward price-earnings multiple of nine. An interesting recovery play.