The Investment Column: Regent Inns can keep on growing

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The Independent Online
Regent Inns has produced a princely performance since it came to the stock market five years ago. But concerns that its phenomenal growth rate is bound to slow have cast a shadow over the group in the last 12 months. In that time it has underperformed the market by more than 20 per cent and its shares have fallen from a high of 373.5p to close at 334p yesterday.

To some extent the fears are justified. With billions of pounds being poured into the pub market by all the major groups, returns are bound to fall. Intense competition from a host of new themed bars and restaurants is taking its toll on Regent's like-for-like sales growth, which continues to slip.

Planning delays of up to 18 months will limit the speed with which it can expand its estate. And it will struggle to maintain operating margins of more than 29 per cent, which are already among the best in the industry.

However the fall in the share price looks harsh. Regent is still likely to grow at a rate which would turn most of its rivals green with envy. It will prove tougher to find decent sites in London, but there is plenty of scope to take its bars, including its Walkabout Inns and Jongleurs comedy clubs, around the country. Its strong management team have proved deft at finding the best locations and its cashflow will easily support at least another 20 openings a year.

Pre-tax profits for the six months to January rose 37 per cent to pounds 7.3m. Analysts forecast full year profits of around pounds 16m, rising to pounds 20m the following year, putting the shares on a prospective price/earnings ratio of 21, then 17. That looks very reasonable for a group which should more than double its size over the next five years.