The Investment Column : Newcomer to hotel sector is worth checking out

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The Independent Online
It is hard to fault the timing of Millennium and Copthorne, the Singapore-owned but Europe- and US-based hotel chain planning a late April flotation. Figures this week from one of the leading industry consultants, Pannell Kerr Forster, confirmed what hoteliers have suspected for some time - 1995 was a bumper year and 1996 looks like being even better.

Good timing then for the 23-hotel chain to tap the London market for pounds 150m in a placing that is expected to value M&C at about pounds 350m. But this is not just an opportunistic grab. The company appears to be an attractive pure hotel play, well managed and backed by one of Asia's most powerful groups.

A relatively new group, M&C, is 100 per cent-owned by CDL Hotels, the listed hotel arm of the Singapore-based Hong Leong group. It was formed from the merger of the existing Copthorne chain of provincial four-star business hotels with a group of bigger city hotels, including the Gloucester and Chelsea in London and a 42 per cent stake in New York's Plaza.

The group has a good geographic spread, with about a third of sales in New York, a third in London and the rest split between the UK provinces and a toehold in France and Germany. Profits last year were pounds 34.6m from sales of pounds 158.9m.

The emphasis, as the chart shows, is very much on high-margin business guests, who provide more than half of revenue in London despite accounting for only 41 per cent of room nights. In the provinces, three-quarters of turnover comes from business users, less than a fifth from leisure users.

Despite that bias, the company is as big a beneficiary as the more tourism- based hoteliers from the upward pressure on room rates caused by the popularity of the UK, and London particularly, for foreign visitors. According to Pannell Kerr, the number of overseas visitors to the capital increased by 9 per cent last year to 12.5 million, average room occupancy for hotels reached 83 per cent and room rates jumped 12 per cent to an average pounds 84.

Boosted by a weak pound,1996 looks like being another bonanza year. M&C will benefit but it also has specific attractions. Throughout the recession, it spent heavily on maintenance and improvements so the chain is in good nick. Unlike many of its peers, it also has a decentralised management structure: head office costs are an undemanding 1.6 per cent of turnover.

Impact day for the float is not until 19 April, so it is too early to judge the financial details. But early indications are that this will be a successful addition to the hotel sector.

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