The Investment column: Hanover has its attractions

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The Independent Online
Hanover International, the upmarket hotel group, has been in the bid spotlight over the last few weeks. Jarvis Hotels was rumoured to be running a slide-rule over the group again, after having its original advances repelled last year.

Word is that Jarvis, which certainly has plenty of cash to spend on acquisitions, has had another look at Hanover but would probably only do an agreed deal rather than launch a hostile bid. While it hasn't ruled out a bid, the chances of an offer seem to be receding for the time being. So where does that leave Hanover?

Despite a sharp rise in the share price to 125.5p over the last few weeks, Hanover is still trading at a steep discount to analysts' estimates of current net asset value of around 200p. Its portfolio of four-star hotels is, by and large, in good locations, a fact that has not escaped Jarvis and may attract other bidders.

Even without the added attraction of a possible quick killing, there are other reasons to invest in Hanover. The shares have fallen from a high of 161.5p last year after a refurbishment at its Hinckley hotel was delayed due to financing problems. But the hotel should benefit from the addition of 78 new rooms this year. And room yields across the group should rise strongly, with plenty of scope to increase occupancy rates.

Analysts have downgraded profit forecasts by nearly a pounds 1m to around pounds 1.85m for 1997. However, Hanover should hit the recovery path this year. Greig Middleton forecasts 1998 profits of pounds 3.5m, putting the shares on a prospective p/e ratio of 13, falling to just seven. The steep discount both to the market and the hotel sector looks unjustified. And continued bid speculation should underpin the share price.

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