The Investment Column: M&C books in a 30% profits rise

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The Independent Online
INVESTORS who booked into Millennium & Copthorne when it floated nearly two years ago have had a very happy stay. In that time the shares have risen more than 80 per cent. Yesterday it showed it had been able to shake off the effects of the strong pound and the Asian crisis on the British tourist market by announcing a 32 per cent rise in 1997 pre- tax profits to pounds 50.2m, causing the shares to rise another 19p to 508.5p.

Last year some analysts were concerned that the hotel boom would soon run out of steam. In London the prospect of 10,000 new rooms threatened to swamp the market. But while it is true the market will struggle to maintain the heady growth levels of the last few years, there are still no signs of the huge increase in hotel capacity that caused the industry's downfall in the late 1980s. And the millennium celebrations will give the sector a further boost next year.

Not that M&C has to rely on the hotel cycle for further growth. Typically, the group is getting a 15 per cent return from its refurbishment programme within 12 months. Its move into conferencing and the business market is a successful strategy and a tight control on costs is continuing to help margins.

However, M&C will find it harder to increase occupancy rates, which are already very strong. To maintain its growth rate into the next century it will have to look for acquisitions. It is eyeing up targets in Europe and North America. Both its Millennium four star hotels and Copthorne mid-market brands have great potential overseas. But any sizeable deal would probably require the group to issue new equity.

Charterhouse Tilney forecasts current year profits of pounds 59.5m putting the shares on a prospective p/e ratio of 17. It is not time to check out of the shares. Under the new leadership of John Wilson, the highly respected former head of Hilton International, the group promises much. But at this price there is little room for disappointment and the stock looks about right for now.