The Investment Column: Recovery strategy pays off for Thorntons

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The Independent Online

Our view: Add

Share price: 156.5p (+5.25p)

It's chocolate season – Valentine's Day, Mother's Day and Easter are all in close succession and Thorntons has been innovating on products to lure chocolate lovers into its stores. Thorntons Moments, described as a family treat, are just hitting the shelves this week. Further work is also under way on design and layout and the new look will be trialled at 10 stores this summer.

Mike Davies, the chief executive, joined the chocolatier from Mars in October 2006, pledging to revive the fortunes of the company which began as a single shop in Sheffield in 1911. His recovery strategy appears to be paying off.

Yesterday, Thorntons reported a 14 per cent jump in half-year profits as it notched its fifth successive quarter of sales growth. Revenues rose 13.9 per cent to £126.7m in the 28 weeks to 12 January while profits increased to £11.9m from £10.5m. Thorntons trades from 378 owned stores and 252 franchises and is also available through supply deals with major supermarkets and retailers. Its website and catalogue service Thorntons Direct is making steady progress, enjoying revenue growth of 25.6 per cent to £5.3m in the period.

And Mr Davies says there has been a marked improvement in customer service following significant investment in the workforce. Innovations, such as chocolate fountains, have helped "to create theatre in store". Thorntons had become a somewhat tired brand a couple of years ago, but appears to have positioned itself back into the premium market, benefiting from the consumer trend towards higher-quality treats.

Shares are not cheap, trading at 15 times 2008 forecast earnings, but with the recovery on track, there is further to go for.

Millennium & Copthorne

Our view: Hold

Share price: 415.25p (+11.75p)

WANTED: Chief executive willing to stay in luxury hotels around the world and decide how best to spend £1bn.

Not a bad job by the sounds of it but, seven months after the last one left, the prestigious hotel chain is still looking for a replacement. The interim boss, Wong Hong Ren, is doing the right things judging by the latest results but the delay in filling the top job is not ideal for a company which owns and operates 112 hotels in America, Europe, the Middle East, Asia and Europe.

But the market was prepared to accept the company's explanation – someone who will not deviate from its strategy – after turning in a sturdy performance for last year. Pre-tax profits advanced 25 per cent to £118m despite a £9.6m writedown on an abortive property development in California.

The setback is disappointing because Millennium has been keen to make its property assets sweat and wanted to turn a former hotel into a hotel and residential development.

Revenue per room – the key measure of profitability – rose by 9.7 per cent, with a further increase to 11 per cent in the opening four weeks of this year. The group's global spread offers protection against the slowdown in the US, which has contributed towards a 50 per cent fall in the share price over the past year. Asia, in particular, is strong.

During the year it took on five new management contracts and three franchises although some analysts see that as pedestrian progress when compared with InterContinental. The strong balance sheet and modest 18 per cent gearing leaves it in good shape to take advantage of any distressed sales. The company could splash out up to £1bn.

The shares sell on just over 15 times earnings, which is not expensive but reflect continuing concerns over the impact of a consumer downturn. Hold.

Altona Resources

Our view: Speculative

Share price: 6p (-0.12p)

Power cuts are crippling South Africa's mining industry. Now South Australia fears that it too could be gripped by an energy crisis. No wonder there is widespread backing for a venture to turn vast local deposits of coal into gas and synthetic fuels.

The project is the brainchild of AIM-listed Altona Resources, which hopes to accelerate work on a feasibility study when it receives a sizeable cash injection from a mystery Chinese investor. The deal, involving a share placing at a 20 per cent discount to the market price, should be rubber stamped in the next few days.

Altona, which listed in 2005, has exploration licences in the Arckaringa basin, which contains more than 7.5 billion tonnes of coal. It wants to build a plant that converts coal into more environmentally clean energy sources including gas and synthetic fuels.

The coal-to-liquid technology is already proven. It provides 30 per cent of South Africa's petrol and fuel needs although not enough to meet the demands of the mining companies. Altona, which raised £2.7m through a placing last April, is valued at £17m. Speculative.

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