Leading light among 'pubcos'

SMALLER COMPANIES

Luminar offers an interesting variation on the "pubco" formula which has proved so successful for companies like Surrey Free Inns and Wetherspoon's.

Turmoil in the brewing sector arising from the tribulations of Greenalls and Wolverhampton & Dudley left Luminar unscathed. In part, that reflects the small free float: Mercury Asset Management owns 52 per cent, with a further 5.3 per cent tied up with management. And Luminar, while it shares some similarities with the suffering companies, has a distinctly different approach.

Luminar was set up in 1987 by Stephen Thomas, who had worked at Whitbread as a director of Aureon Entertainments, where he ran 35 theme bars and discos. Unlike the "pubcos", which usually rely on better versions of the traditional pub format, Luminar's future rests on its Chicago Rock Cafe concept. The first of these opened in 1990 in King's Lynn, and it now runs 19, with six set to open by Christmas. Because they offer eating, drinking and dancing under one roof, the cafes are unlike most competitors; licences for such venues, opening after 11pm, are difficult to obtain for the better sites.

Chicagos are aimed at the young, affluent 18-35 market, but Luminar is also developing its Cuban-inspired Rhythm Room Bar and Grills. These also have a combination of food, dance and entertainment, but for an older customer. It has three Rhythm Rooms, with more to come.

Discos were the original core business, and Luminar has 17, which pulled down a pounds 2.2m trading profit in 1996. While Luminar will buy more nightclubs, they do not offer the same scope as other parts of the business.

A typical Chicago should make a cash profit of pounds 300,000 a year. Given that each venue costs about pounds 600,000 to develop, the return on capital is clearly high. Luminar believes there is the potential for 100 venues in the UK and, in the current financial year, it will open one every six weeks.

Last year, sales of pounds 21.5m produced pre-tax profits of pounds 1.4m, after a non-recurring property write down of pounds 1.5m. So the business should make more than pounds 3m in the current year, rising to perhaps pounds 4.5m in 1998.

Stock in Luminar has shot up since it was floated at 200p in May of last year, and closed on Friday at 419.5p. Although the shares are trading on fairly fancy forward multiples, of about 20 times current year earnings, there are several defensive qualities. For a start, it seems to have found a winning formula, and predators would be keen to snap up the business if it stumbles. Buy.

Richard Phillips