Smaller Companies: A pub newcomer raises some cheer

WITH competition from Grand Metropolitan's disposal last week of 1,600 Chef & Brewer pubs to Scottish & Newcastle for pounds 736m, little attention was paid to debut figures from Regent Inns, a stock market newcomer.

Investors with long memories, however, would have spotted a link between the two events. Regent is run by David Franks, whose family sold its share of Chef & Brewer to Grand Met in 1968.

Regent is a minnow by comparison, with a market capitalisation of pounds 7m, but its rapid growth has already attracted interest. Its shares have risen 40 per cent since flotation in April.

Figures for the year to July emerged slightly ahead of expectations. Profits rose 47 per cent to pounds 1.34m from a 9 per cent improvement in sales to pounds 13m.

Earnings per share were 35 per cent up at 10.5p and a final dividend of 2.25p made a total of 4.5p. The shares rose 10p to 189p on the day of the results announcement and are now trading at 190p.

Regent is one of the largest independent pub operators in London. Half its 36 outlets are grade 2 listed buildings and it has eschewed the depressingly popular themed approach to pub design.

All its pubs are different, there is an emphasis on drinks rather than food, and many pubs are on water, including converted mills and riverside inns.

Obtaining a full listing has given a fillip to Regent's expansion plans and 12 new pubs are planned this year, six before Christmas. Mr Franks thinks the group can manage up to 80 sites with its existing infrastructure and plans to hit that target within five years.

Ungeared since flotation, the company estimates that gearing will be 30 per cent by next June's year end. After that it should plateau at about 55 per cent, although interest will be well covered by operating profits.

The key to Regent's continuing success is how effectively it can generate targeted returns of 20 to 25 per cent on capital investment. It also remains to be seen how well management can cope with the demands of a larger group.

The consensus of profit forecasts for the year to next June points to pounds 2.1m, implying earnings per share of 12p. That would put it on a price/earnings ratio of 16.

That is not demanding if the current rate of growth is maintained and the shares look likely to continue attracting a City following.