No Pain, No Gain: Our Man's Portfolio, Room in hotels for canny investor

HOTEL SHARES are bombed out. Even the Ladbroke take-over bid for Stakis and the stock market excitement over Greenalls' De Vere Hotels and Vaux's Swallow Hotels has not injected much enthusiasm into a sector which is feeling the cold blast of investment neglect.

The traditional hotel industry - the two, three and four star category - once enjoyed a glamour rating. Now it is a victim of increasing competition from the growth of budget hotels, run by the likes of Granada and Whitbread, as well as suffering from the cutback in consumer spending which has hit most leisure activities.

Few have suffered more than Regal Hotels, rescued from the graveyard as recession gripped the country in the early 1990's. With its colourful history Regal represents an ideal adventure share for the pain portfolio. It should even provide a dash of excitement.

The new style Regal started with a couple of hotels and has since expanded by using its share quote as ammunition for acquisitions. It now has more than 100 hotels. Profits in 1997 were pounds 17.4m and last year's figure should come out, believe Peel Hunt, at around pounds 21.6m, down from earlier estimates.

This year the rapidly changing group could manage about pounds 27m. The shares have firmed slightly in past weeks but at 29.25p, against a recent 25.5p low, they still look very cheap with the 5.6 historic price/earnings ratio not far out of line with the 5.3 dividend yield.

Just how far the group has fallen from favour can be judged by the steepness of its share slide. The price touched 49p last year and at the start of 1997 was 65p. Like Thistle Hotels, the smaller Regal has close Far Eastern links; Regent Corporation, an associate of Malayan United Industries, accounts for 20 per cent and enjoys boardroom representation.

It is possible that Regal's thirst for shareholders' cash to fund its rapid expansion has ruffled market confidence, leaving it more exposed as pressure built up on the hotel industry. Significantly it did not resort to shareholders for its last deal. It acquired Country Hotels for around pounds 42.5m through a joint venture company into which Regal pumped pounds 30m.

Hotels have enjoyed a love-hate relationship with investors. Many chains went belly-up in the 1970's recession. And in the early part of this decade receivers were the nation's biggest hotel keepers as individual hotels and chains failed. Country Hotels was once part of the near terminal Queens Moat Houses, which still struggles under a debt mountain. Regal emerged from the first corporate voluntary arrangement. Resort Hotels crashed when skulduggery was uncovered.

But such costly days of dismay are over for the country's hoteliers and investors. The way Regal's management dragged it out of bankruptcy and then indulged in spectacular expansion (although it possibly overpaid on occasions) should auger well.

Management changes should ensure a period of consolidation which should mean room returns will increase. It is also busy exploiting its bar, health club and restaurant facilities and indulging in a rebranding exercise. Corus is the name chosen for the hotels.

Indeed the three year pounds 80m rebranding has caused some anxiety in the market with Charterhouse Tilney fretting about the pressure the revamp will put on the group's cash flow.

Regal's directors thought about joining the management buy out bandwagon last year. But talks were abandoned. There was also a feeling that perhaps the management was not the only party interested in acquiring the group. It is felt the potential corporate raider has not completely abandoned take over ambitions.

As the Ladbroke descent on Stakis demonstrates, and the Whitbread rumours indicate, there is room for consolidation among the quoted hotel chains. With its shares so depressed Regal, capitalised at nearly pounds 85m, could be vulnerable.

It is, however, a share which requires careful monitoring. If it falls below 20p then investors should run.

Teeth should be brushed twice a day to prevent tooth decay
Bryan Cranston as Walter White, in the acclaimed series 'Breaking Bad'
footballChelsea 6 Maribor 0: Blues warm up for Premier League showdown with stroll in Champions League - but Mourinho is short of strikers
Those who were encouraged to walk in a happy manner remembered less negative words
Arts and Entertainment
Princess Olga in 'You Can't Get the Staff'
tvReview: The anachronistic aristocrats, it seemed, were just happy to have some attention
Renee Zellweger as Bridget Jones
ebooksAn unforgettable anthology of contemporary reportage
Life and Style

Board creates magnetic field to achieve lift

There have been various incidents of social media users inadvertently flouting the law

Life and Style
Stack ‘em high?: quantity doesn’t always trump quality, as Friends of the Earth can testify
techThe proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?
Bourgogne wine maker Laboure-Roi vice president Thibault Garin (L) offers the company's 2013 Beaujolais Nouveau wine to the guest in the wine spa at the Hakone Yunessun spa resort facilities in Hakone town, Kanagawa prefecture, some 100-kilometre west of Tokyo
CSKA Moscow celebrate after equalising with a late penalty
footballCSKA Moscow 2 Manchester City 2: Premier League champions let two goal lead slip in Russia
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Helpdesk Analyst

£23000 per annum + pension and 22 days holiday: Ashdown Group: An established ...

Senior Helpdesk Analyst / Service Desk Co-ordinator

£27000 per annum + pension, 22 days holiday: Ashdown Group: An established ind...

Senior Pensions Administrator

£23000 - £26000 Per Annum: Clearwater People Solutions Ltd: Our client is curr...

Corporate Actions Administrator / Operations Administrator

£25 - 30k: Guru Careers: A Corporate Actions Administrator / Operations Admini...

Day In a Page

Indiana serial killer? Man arrested for murdering teenage prostitute confesses to six other murders - and police fear there could be many more

A new American serial killer?

Police fear man arrested for murder of teen prostitute could be responsible for killing spree dating back 20 years
Sweetie, the fake 10-year-old girl designed to catch online predators, claims her first scalp

Sting to trap paedophiles may not carry weight in UK courts

Computer image of ‘Sweetie’ represented entrapment, experts say
Fukushima nuclear crisis: Evacuees still stuck in cramped emergency housing three years on - and may never return home

Return to Fukushima – a land they will never call home again

Evacuees still stuck in cramped emergency housing three years on from nuclear disaster
Wildlife Photographer of the Year: Intimate image of resting lions claims top prize

Wildlife Photographer of the Year

Intimate image of resting lions claims top prize
Online petitions: Sign here to change the world

Want to change the world? Just sign here

The proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?
Ed Sheeran hits back after being labelled too boring to headline festivals

'You need me, I don’t need you'

Ed Sheeran hits back after being labelled too boring to headline festivals
How to Get Away with Murder: Shonda Rhimes reinvents the legal drama

How to Get Away with Murder

Shonda Rhimes reinvents the legal drama
A cup of tea is every worker's right

Hard to swallow

Three hospitals in Leicester have banned their staff from drinking tea and coffee in public areas. Christopher Hirst explains why he thinks that a cuppa is every worker's right
Which animals are nearly extinct?

Which animals are nearly extinct?

Conservationists in Kenya are in mourning after the death of a white northern rhino, which has left the species with a single male. These are the other species on the brink
12 best children's shoes

Perfect for leaf-kicking: 12 best children's shoes

Find footwear perfect to keep kids' feet protected this autumn
Anderlecht vs Arsenal: Gunners' ray of light Aaron Ramsey shines again

Arsenal’s ray of light ready to shine again

Aaron Ramsey’s injury record has prompted a club investigation. For now, the midfielder is just happy to be fit to face Anderlecht in the Champions League
Comment: David Moyes' show of sensitivity thrown back in his face by former Manchester United manager Sir Alex Ferguson

Moyes’ show of sensitivity thrown back in his face... by Ferguson

Manchester United legend tramples on successor who resisted criticising his inheritance
Two super-sized ships have cruised into British waters, but how big can these behemoths get?

Super-sized ships: How big can they get?

Two of the largest vessels in the world cruised into UK waters last week
British doctors on brink of 'cure' for paralysis with spinal cord treatment

British doctors on brink of cure for paralysis

Sufferers can now be offered the possibility of cure thanks to a revolutionary implant of regenerative cells
Ranked seventh in world’s best tourist cities - not London, or Edinburgh, but Salisbury

Lonely Planet’s Best in Travel 2015

UK city beats Vienna, Paris and New York to be ranked seventh in world’s best tourist destinations - but it's not London