The Investment column: Regent Inns can do no wrong as profits rise 71 per cent
Half-year results yesterday showed the good times continuing to roll. Pre-tax profits of pounds 5.99m were 71 per cent higher than a year ago, struck from sales of pounds 20.6m, a 43 per cent increase. Earnings per share of 6.32p were 67 per cent higher and the dividend rose almost as fast, up 59 per cent to 1.0p.
Behind those figures lay a healthy growth in like-for-like sales of 11 per cent, so the company is not simply buying growth but creating it from within. On top of that, expansion is accelerating with nine openings in the first six months likely to be joined by another 11 in the second half. That will take the group to 100 outlets and the target for four years from now is 200.
Trading since the end of the first half has continued strongly and like- for-like sales are once again 10 per cent better. Plainly this is not sustainable indefinitely, but Regent is still firing on all cylinders. Margins are still rising, gearing is a manageable 47 per cent and, more important, interest and dividend cover is very comfortable.
What is striking about Regent's success is that it doesn't appear to reflect any great imaginative leap or stunning new invention. The company simply runs pubs, opening new ones at a steady rate in good high street locations, often converting old banks or post offices. The difference would seem to be just that it does it better than anyone else.
As free houses, Regent's pubs offer a good selection of popular beers. As crosses between traditional pubs and wine bars, women like them. People like the fact that, unlike arch-rival JD Wetherspoon, Regent's pubs are not obviously part of a chain. It is a formula that works.
That's important for investors, because one of the common features of the handful of truly great growth stocks the market throws up each year is the ability to clone a formula and quickly roll it out nationally. Regent is starting a concerted push into the Midlands and North from its London heartland, so if the formula travels the extraordinary growth of the past few years could continue.
The trouble with high-growth shares such as Regent is that they always look too expensive so potential investors are put off by a sky-high rating, only to regret it within weeks. Two months ago Regent was 300p and looking pricy; now it is 20 per cent higher.
On the basis of house broker Kleinwort Benson's forecast of pounds 11.7m profit this year and pounds 15.5m next time, the shares stand on a prospective price/earnings ratio of 30, falling to 23. Investing at this level requires a leap of faith in Regent's ability to maintain momentum, but existing shareholders should hold on.
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