Stock Market Week: Granada plays a waiting game on sales as hotel business perks up
Monday 10 June 1996
After all, it was reasoned, Granada needed to cut its debt mountain as quickly as possible and would be forced to hack away at Forte.
Nearly five months later and the leisure group has still to indulge in a rush of deals. Helped, no doubt, by low interest rates, it has demonstrated the wisdom of playing a waiting game.
So far the only big disposal has been the sale of 60 of the smaller hotels under the White Hart banner to Regal Hotels for pounds 121.7m. During the battle Regal had got near to doing a deal with Forte but with Granada in command it was forced to renegotiate and come away with a slightly changed package which looked less favourable than what had been originally agreed.
The motorway service areas, which were expected to be the first to go, remain in Granada's fold; so do the Exclusive and Meridien hotels, which had looked early candidates for the chop.
Indeed chairman Gerry Robinson's more recent pronouncements suggest Granada could be falling in love with what is a glamorous but not always rewarding industry.
He still intends to sell the Exclusive trophy hotels but in a remarkable somersault is, at least for the time being, keeping the Meridien portfolio. In the heat of battle Mr Robinson promised to unload both chains.
He also said Forte's Savoy Hotel and Alpha Airports stakes would go. They too remain on Granada's books.
With the hotel industry enjoying its best season for many years, Mr Robinson's reluctance to rush into sales is understandable. He could, however, be near to clinching some of the Exclusive deals, although Sir Rocco Forte, the former Forte chief who plans to start a Forte Mark II hotel empire, is thought unlikely to still be in the running.
It is possible - just - that Granada will have details of hotel sales when it delivers its interim results on Wednesday. It should be able to give an indication of whether Exclusive sales are near, if not details of disposals
Interim profits, with a first-time Forte contribution, could approach pounds 200m with the Forte hotels chipping in pounds 30m.
Granada's shares have had a strong run, outstripping the market and prompting some to ponder the surely remote possibility that it could be contemplating another major swoop - there is even talk of a Pearson bid.
Thorn EMI will also star this week - for the last time. Tomorrow Sir Colin Southgate, chairman, will produce the final, final figures of the rental to showbiz group - showing a heady pounds 100m or so jump to, say, pounds 525m.
But that should be only the start of the music. Sir Colin, who announced in February that Thorn intended to join the demerger fashion by dividing into two standalone companies, will also provide details of the splits. A few days later the demerger will start in earnest with an investment presentation for the music side.
The break-up should be final in August with share dealings in the two companies, if all goes according to plan, starting on the 19th. Estimates of the group's value stretch from pounds 19 to pounds 23 per share. But a takeover bid could dramatically change the calculations. Many are forecasting a relatively short independence for the music division. Predators, goes the conventional wisdom, are just waiting to descend on the sexy music company, with Disney among the front runners.
Until the much-stronger-than-expected US payroll figures sent shares spinning on Friday, last week had been quiet and uneventful for the market. But the prospect of higher US interest rates so soon after the latest Kenneth Clarke cut had Footsie in ragged retreat. It will take a great deal of home-produced excitement - and there is a raft of Whitehall statistics which could offer encouragement - to overcome the US stunner and help shares to meet the more bullish predictions which circulate.
Utilities again feature loudly in the week's results. East Midlands is the first of the electricity groups to report year's profits after the first of Professor Stephen Littlechild's regulatory reviews and it will be intriguing to see how it has been influenced. There is also the complication of the sale of its shares in National Grid.
Profit forecasts, therefore, are spread wide. Greig Middleton is top of the range, shooting for pounds 210.9m; NatWest Securities is on pounds 202.2m and UBS brings up the rear with pounds 172.1m. Last year's figure was pounds 214m.
Two dairy groups are in the reporting parade. Both are suffering from the decline in the support the average family now offers its daily milkman and from the BSE disaster.
Yet Unigate, today, is expected to more than double profits to pounds 121.5m and if the proceeds of the sale of its third share of Nutricia, the Dutch baby food maker, are taken into account the figure will be around pounds 341.5m.
After the Nutricia sale, Unigate's cash hoard should be pounds 150m. A further pounds 42m came in last week from the disposal of part of its US restaurant operations.
With such riches, acquisitions must be on the cards. If not, then Unigate should indulge in a shareholder-friendly special dividend.
The group has benefited from favourable commodity prices and bedding down acquisitions. But BSE has taken its toll on the shares.
Northern Foods, tomorrow, will also display a spectacular advance - from pounds 27.9m to pounds 125m. Last year's figures were devastated by provisions. Its shares have also suffered from BSE but Alan Erskine at NatWest says: "The prospect of a cattle cull sufficient to impact on UK milk supply has receded. Throw into the equation the benefits of a chastened and more realistic management team and it's possible (just) to argue the shares are fairly valued."
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