No Pain, No Gain: Received wisdom fails to predict a pubs bonanza
Saturday 05 February 2005
Old-style pub chains, where the licensee rents or leases the property, are enjoying an investment boom. Yet the atmosphere is much more sober at the other extreme of the drink retailing market - trendy bars and nightclubs. The shares of Enterprise Inns and Punch Taverns are riding high, as investors ignore huge debts and concentrate on what seems to be an infallible trading formula. But high rents and soaring staff costs, as well as tight margins and tough competition, have devastated the shares of the high-street groups, once the darlings of the stock market. The Government's ill-directed attempts to curtail so-called binge drinking are also creating difficulties for them.
A number of chains, such as Old Monk and Springwood, have gone belly- up. SFI, the Litten Tree group, struggles in the unquoted wilderness, and Yates fell to a cheapskate takeover bid. The shares of other leading players Luminar and JD Wetherspoon are depressed, a long way from their peaks. But in the past few months, the shares of Regent Inns, known for its trendy Walkabout and Jongleurs outlets, have nearly tripled. They are now 87p against only 30p in October.
Timing is everything in the stock market. And any investor indulging in a little Regent action could easily have come a cropper. But from the autumn of 2003, when the shares last topped 100p, there have been splendid opportunities to average down and reap a handsome reward. All it needed was a little courage. I'm afraid I lack such a quality and the Regent romp escaped me. But spare a thought for any investor lumbered with the stop-loss mentality (the idea is to lock in a loss at a predetermined level, usually 20 per cent below the buying price). They were mostly cursing their luck as the shares staged their merry recovery.
It is surprising that in this electronic age, the stock market still clings to time-honoured saws. They are often contradictory. "It's never wrong to take a profit" and "Always leave something for the market" stand oddly against such phrases as "Always let your profits run but cut your losses". I suppose the most absurd of them all is "Sell in May and go away, buy again on St Leger Day". That may have had some substance years ago, when the rich left the country to spend their summers in the south of France. But it has absolutely no relevance in today's climate. If there is a message to be assimilated from the conflicting nature of this time- honoured but surely discredited guidance, it is that flexibility is the essence of sound investment and rigid rules should be ignored.
Regent is one of those companies that enjoyed a staggeringly successful early stock market life. It then fell from grace - not once but twice. In the distant past, shares nudged 400p before an accountancy hiccup sent them stumbling and led to new management.
For some time, it looked as though Regent had got its act together and the shares topped 200p in 2001, with profits coming in at pounds 14.6m. But then trading deteriorated and a chain that had clearly over-expanded felt the pinch. A rights issue had little impact and profits slipped away with a pounds 6.6m loss last year. Banking agreements were broken and the final dividend axed. The old management departed and new faces arrived. Regent's shares hit an all-time low.
But the newcomers, Bob Ivell and John Leslie, previously with Scottish & Newcastle, seem to have turned around Regent's fortunes. Trading has improved and the stock market is hoping for further cheer when the interim figures are rolled out next week.
Although the Ivell/Leslie contribution has been significant, it has, I suspect, had only a marginal impact on the shares. Much of their recent strength stems from takeover hopes. Financier Robert Tchenguiz had built a 13 per cent stake, and there are stories that he plans a bid or wants to engineer a deal, perhaps merging Regent with his unquoted pub empire. Regent is an intriguing recovery play - almost suitable for the No Pain, No Gain portfolio. But without corporate action the shares look to be ahead of events - unless next week's results prove to be outstanding.
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