The Investment Column: Hogg Robinson on road to recovery

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The Independent Online
Hogg Robinson's share price has never recovered after the business travel to financial services group stunned investors with a profits warning last January. However yesterday's results, which showed a 21 per cent rise in underlying pre-tax profits to pounds 14.5m for the six months to September, suggest it is on the road to recovery.

The transport division, which had proved to be the group's Achilles' heel over the last few years, has finally been off-loaded to its management team. Given the division's dwindling earnings, the pounds 23m HR got for selling the business looks a good price.

HR is left with a fast-growing business travel subsidiary with excellent prospects. After a few hiccups Bennett, its Scandinavian travel agent, is performing well. The market for business travel is growing strongly and by securing more fee-based work the group is better placed than most to cope with a move by airlines to cut commissions to agents.

With pounds 37.5m in the bank HR also has the financial fire-power to launch an acquisition spree. After earmarking pounds 15m for an earnings-enhancing share buy-back it reckons it has another pounds 65m up its sleeve, with travel businesses in North America and the Far East on the shopping list. The logic goes that HR will be able to win much more business if it can offer customers a travel service with global spread.

The one potential black spot is the financial services division. It still has its fair share of problems, with the pensions market struggling to shrug off the damage done by the mis-selling scandal, and HR is likely to be forced to dispose of some of the worst performing bits.

UBS forecasts full-year profits of pounds 29m, putting the shares on a prospective PE ratio of 10. Trading on a 40 per cent discount to the market, HR shares, ahead 2p at 225p, look good value.