The Investment Column: From divine comedy to divine investment

Share price: 1,156p (+33p)

Our view: Hold

Some years ago, National Express was lampooned by a band called The Divine Comedy, who advised: "Take the National Express when you're life's in a mess..."

The company has come a long way since then. It no longer runs dodgy coaches with, as the song puts it, a jolly hostess selling crisps and tea, but is a well oiled international transportation group operating coach, rail and bus services in Britain, the largest private network of coaches in Spain, and more than 15,000 school buses in the US. Rail is proving the star performer with growth of 6 per cent last year, despite the loss of three franchises. Progress should accelerate this year with the recent addition of the East Coast Main Line franchise, where passengers may not always get a a seat but they will be offered free wi-fi access, just one of the perks now being provided to Britain's long suffering travellers.

The coach operation grew by 3 per cent and buses by 2 per cent, while in Spain, which now accounts for a third of total profits, growth was 4 per cent after the acquisition of Continental Auto. Combined, the businesses generated full-year profits slightly ahead of forecasts at £177m, an increase of 13 per cent. This gave National Express sufficient encouragement to commit itself to paying annual dividend increases of at least 10 per cent for the next three years. If the company has concerns, these are in Spain, where the economy is slowing down sharply after years of high growth. While public transport is cheaper than private cars, there could still be some drop in passenger numbers if times get tight. However, further liberalisation of the public transport system in Spain and elsewhere across Europe should create growth opportunities.

As a big user of fuel, National Express has hedged a large slice of its future consumption but may not be completely ring-fenced from further spikes in the price. The shares have slipped back from their best levels but, on over 12 times expected earnings for 2008, look up with events.

Whitbread

Share price: 1,312p (+86p )

Our view: Buy

Whitbread believes a cheap night in one of its Premier hotels and a bite in the Beefeater or Brewers Fayre next door is a winning combination in these difficult days. The evidence suggests it is right.

Occupancy levels at the £50-a-night roadside chain are 79.2 per cent – among the highest in the industry – feeding through to a 10.5 per cent improvement in sales during the 50-week spell to 14 February. Business is not as brisk in the restaurants, although they do not appear to be struggling as much as those on the high street. Sales were up 0.8 per cent but were doing a lot better in the final quarter when fewer were closed for refurbishment. Whitbread is freshening the menus to jog trade along.

About 300 of its 400 restaurants are on the same sites as Premier. There are plans to build hotels at the other 100 locations, although planning obstacles might make that target a little ambitious. In all, Whitbread will add another 3,400 rooms this year, 400 more than expected.

It is also merging the management of the hotels and restaurants which, together with outsourcing its logistics operation, will generate annual savings of £25m, although restructuring costs will be £35m. The other leg of the group, Costa coffee shops, is trading strongly, with sales up 6.3 per cent, and will soon open its 1,000th outlet in Moscow.

Whitbread's spread of leisure businesses all rank highly in the affordability stakes. The shares are attractively priced on 15.6 times earnings for the current year.

Redrow

Share price: 309p (+6.75p)

Our view: Avoid

Housebuilder Redrow's share price fell 44 per cent during the second half of last year. During the same time, profits fell 34 per cent. So markets were taking a slightly worse view of events. Who can blame them?

The housing market is under siege. Only those forced to buy – for reasons of changing jobs or family circumstances – are going to take the plunge and even then there is no guarantee banks will lend the money.

The average price of houses sold by Redrow was virtually unchanged at £162,800. The number of completions fell 4.7 per cent and is expected to be down 10 per cent at the year end. Margins are being squeezed as it is forced to offer incentives to stimulate sales. All this added up to a slide in profits to £35.8m. The company says cuts in interest rates in December and February has led to an increase in the number of people visiting its sites. while cancellations have fallen from 25 per cent last autumn to 20 per cent.

That offers mild encouragement but no more. Full-year profits could well fall from £120m previously to around £75m, leaving the shares on under 8 times earnings. The price is being shored up by a strong land bank and healthy dividend payout. Avoid.