The Investment Column: Coffee Republic

THE MARKET for trendy urban coffee cafes has seen explosive growth in the UK but the big leisure players are muscling in. Whitbread's Costa Coffee chain, the American-owned Starbucks and McDonalds' Aroma format are all expanding. Up against this, what chance is there for Coffee Republic, one of the first to spot the market's potential four years back?

The AIM-listed company, which claims an estate of 53 outlets, maintains that all is progressing to plan as the red ink flows amid the roll-out of its chain. Yesterday it turned in doubled losses of pounds 1.5m in the six months to September though the shares didn't budge at 20.75p. The group is not expected to break-even until the middle of 2002, with a main listing planned for next year.

Somewhat worryingly, Republic is vague on its expansion plans. Executives say it will seek to boost its non-London presence, expanding in Birmingham, Leeds and Newcastle.

Like-for-like sales growth of 15 per cent looks encouraging. But Scottish & Newcastle's recent decision to sell its 10-strong Express chain shows that even the bigger players are finding the going tough.

The trick will be to grab new custom through a programme of rapid openings, while developing brand loyalty. The proceeds of a pounds 7.4m share offering last June provides financial strength. Its house broker suggests full- year losses of pounds 2.4m. Sector consolidation could invite a bid. Speculative buy.