New hotels yield Regal profits

The Investment Column

Squeezed between the budget hotels on one hand and the four-star market on the other, the three-star hotels sector is seen by many as a place to avoid.

Charles Vere Nicoll of Regal Hotels begs to differ and bet the ranch on the three-star provincial market earlier this year when he agreed to pay pounds 122m for 60 of the White Hart hotels being sold as part of the Granada- Forte deal.

The deal transformed Regal, which started out with just three hotels in 1993, and gave it more or less national coverage. Regal's view is that there is plenty of room for three-star hotels which can offer meeting and banqueting facilities, which the motels don't, and at prices the four- star sector can't match.

The company's figures for the six months to June include only a two-months contribution from the White Hart chain but so far the signs look encouraging.

Profits shot up from just pounds 490,000 to pounds 2.9m due to the acquisition and the key indicators are heading in the right direction. Average occupancy rose by 5.4 percentage points to 63.9 per cent.

Room rates also improved by 6 per cent to pounds 36.41. Regal feels the White Hart chain was neglected under the Forte regime and sees plenty of scope to get higher yields from the properties.

The White Hart chain has been re-badged under the Regal name, which the company sees as stronger. Better financial systems have been introduced to monitor costs.

Mr Vere Nicoll also sees plenty of room to improve margins, particularly in the dining and bar areas. The company has tested themed bars and restaurants and found takings have soared.

With a maiden dividend of 0.3p and the shares up from 30p last year to 55p, up a penny yesterday, recent shareholders have good reason to be pleased even though this is little higher than the level reached two-years ago.

With profits of pounds 10m expected for the full year the shares are on a forward rating of 14. A discount to the sector but after the strong run over the last year, not the bargain it was.