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Stakis returns a lesson for Forte

Latest figures from Stakis, the Glasgow-based hotels-to-casinos group, give a clue as to just why Granada is so interested in Forte. Stakis squeezed close to a point of extra margin from its 41 hotels in the year to 1 October, taking the return on sales to just shy of 30 per cent.

Impressive in itself, that figure compares with the 17 per cent that Forte, the market leader, managed to extract from its hotel assets in its most recent figures. Although Forte should have been able to improve on that this year, there is clearly a lot more to go for, particularly in its Post House chain, which broadly competes with Stakis.

Conversely, it leaves the Scottish group with a problem created by its own success. The indigestion caused by over-extension in the 1980s has been cured by new management, taking the shares from a low of 21p in 1992 to a peak of over 90p, hit in April last year. But since the beginning of the year, they have underperformed the FT All Share by close to 20 per cent as the market questions where Stakis goes from here.

Yesterday's results provided only some of the answers. Pre-tax profits rose 28 per cent to pounds 25.8m, on turnover 19 per cent ahead at pounds 173m. Hotels provided the engine of growth, boosted by profits up 26 per cent to pounds 31.2m on the back of rises in both occupancy and room rates.

The five units acquired during the year are all contributing and capital spending on the existing portfolio is being stepped up.

Meanwhile, as forewarned in October's trading statement, casinos did badly, with profits dipping from pounds 12.5m to pounds 11.7m, an underlying fall of pounds 1.7m stripping out acquisitions. The fall in the "drop", the amount punters spend on chips, was blamed on the Lottery, the hot summer and visitor charges, which have now been withdrawn.

Group profits of pounds 30m this year would put the shares at 79p, down 3p, on a forward multiple of 14. With the tax charge rising, Stakis faces slowing earnings growth and may need to find an acquisition to keep the City happy. Hold.