Market Report: Ladbroke lands a double, but won't lift hotel gloom

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The Independent Online
LADBROKE IS unlikely to lift the gloom which has engulfed hotel shares when it produces its interim figures this week.

The betting-to-hotels group is expected to achieve a commendable pounds 20m or so profits advance to around pounds 120m. The hotels will have performed relatively well, but gaming profits will have galloped ahead.

Like the rest of the hotel industry, Ladbroke's shares have been under pressure. They finished last week at 255p against a 12-month high of 360p.

Hotel stocks are so unloved that the industry would appear to be in deep recession. Yet trading, by most accounts, is reasonable, and there is the rumble of takeover action.

Many hotel shares have been lumbered with a Fawlty Towers image because of worries about slower consumer spending and the impact of the strong pound on tourism. But Ladbroke's Hilton Hotel portfolio has an international spread, with lower Asian profits offset by a stronger Continental performance. On the home front, profits could be up by as much as 10 per cent.

But it is the betting contribution which should underline that bookies do not leave much to luck. BT Alex.Brown is looking for Ladbroke's gambling profits to shoot up by a third.

The group still faces uncertainties. Its takeover of the Coral betting shops from Bass looks likely to be nobbled for apparent monopoly reasons.

Ladbroke had bet on the deal being cleared, and had handed pounds 362.7m to Bass and made arrangements to trim its betting shop chain to accommodate regulatory problems.

It may still get the go-ahead, but have to unload more outlets than originally intended. However, with 2,600 shops and 35 per cent of the market, chairman Peter George could find himself forced to sell Coral.

Still, this would not be a disaster. Bass may not want Coral and Ladbroke may not be able to have it, but others are likely to be tempted. A trade sale, or one to a financial group, are possible; so is a flotation.

On hotels, Ladbroke's relationship with the Hilton Hotel Corporation of the US continues to intrigue. HCC runs the Hiltons in the US, Ladbroke in the rest of the world. They have a trading pact, and there have been suggestions that HCC will take a 5 per cent stake in Ladbroke. But the stock market expects the two to merge in the fullness of time.

Still Ladbroke, even without HCC, seems ready to strengthen its hotel operations. It was, after all, an unsuccessful bidder for the Inter-Continental chain which went to Bass.

Rolls-Royce, with its shares feeling the impact of the Asian crisis, should at least produce robust interim profits - say pounds 155m, a 33 per cent increase.

Hardly a week goes by without Rolls announcing a new aero-engine contract. Its order book stands at pounds 8bn. But Asia represents almost a third of that, and the market is anxious to know whether the rest of the world is making up for any cancellations or deferrals. Some say Rolls is accepting exceptionally narrow margins for most of its contracts, banking on subsequent sales and servicing rewards.

Reckitt & Colman is among those companies which have undergone a makeover, ditching its food and soft drink operations to concentrate on pharmaceuticals, toiletries and household products.

Interim profit estimates have been pulled back recently and only modest progress is now expected, say pounds 170m against pounds 166m last time.

Retailer Allied Carpets is due to roll out its belated year's figures this week. They have been held back by accountancy problems at some stores which, it seems, booked profits on sales when orders were placed rather than waiting until the deal was completed. Last week two directors quit, apparently taking the blame for the problem which will hit profits.

Even before the incorrect sales bookings were discovered Allied produced a profits warning, prompting the market to lower its expectations from pounds 20m to pounds 13m. Now the guess is the company will manage around pounds 10m against pounds 16.2m.

The shares have been suspended at 74.5p since the accountancy errors came to light. Once the profits are known trading is expected to resume. The shares were placed at 215p two years ago, and reached 320p two Christmases ago. Since then it has been all downhill as the retail recession has hit the high street, devastating the shares of shop keepers.