Scottish Hotels presses ahead: The Investment Column

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The Independent Online
Scottish Highland Hotels shrugged off the shelving last week of rival Principal Hotels' planned flotation. It is pressing ahead with its own market debut next month and yesterday signalled its confidence by sticking with the placing price of 125p a share it settled on in September.

With six hotels in Scotland's central belt and only 525 bedrooms, Scottish is small even by the standards of the overpopulated, fragmented hotel sector. Its biggest challenge will have been persuading investors that it has anything different to offer but sources close to the float say the placing, to raise pounds 13m, was twice subscribed.

At the placing price, Scottish will be valued at pounds 30.4m, just 12.4 times post-tax earnings, making it one of the most cautiously priced issues. The company said it would have paid a full-year dividend of 3p, representing a gross yield of 3 per cent.

The former fiefdom of the Fimmers family, which remains a sizeable shareholder, the company fell on hard times in the recession and management control was relinquished to the professional operations team who had previously reported to the family. Hamish Grossart was brought in as chairman.

They transformed the company from a family plaything to a more focused business venture and since 1993, operating margins have risen from 21 per cent to a forecast of more than 30 per cent in the year ending tomorrow.

Profits for the period just closing are estimated at not less than pounds 2.1m from sales of pounds 16.5m, up from the pounds 1.4m recorded last year before a one- off chunky exceptional gain that distorted the reported figure. Back in 1993, profits of only pounds 242,000 were made from sales of pounds 14.9m.

When dealings start on 11 November, Scottish should get off to a healthy start. Thereafter it will have to take its chances in a seriously overcrowded market.