The Investment column: Welcome profits from Friendly

New management led by chief executive Tony Potter are at last starting to make a difference to Friendly Hotels. After less than a year in the hot seat, the former veteran of Ladbroke and Hilton International has raised occupancy in the hotels business from 61.8 per cent to 63.1 per cent last year and average room rates by 5 per cent to pounds 31.41.

The performance is still below the industry's best, particularly up- market groups operating in London where Friendly is absent, but things are clearly moving in the right direction.

In the first quarter of the current year, Mr Potter has added another 2 percentage points to occupancy and a very handy 11 per cent to room rates.

Although Friendly returned to black in the year to last Christmas Eve, reporting profits of pounds 4.47m to replace losses of pounds 6.86m yesterday, the underlying improvement is obscured by the continuing presence of the loss- making serviced office business. The decision to sell that operation led to a pounds 9.6m charge in 1995, but the good news is that Friendly is now in talks with a publicly quoted and substantial buyer.

Stripping out the offices, the wholly owned hotels operation raised its profits pounds 4.82m to pounds 5.52m last year. The business, situated in the cutthroat middle market, has clearly benefited from the master franchising agreement with Choice Hotels International, one of the biggest US groups, agreed last year.

The hotels are all now rebranded as either Comfort Inns or Quality Hotels and Mr Potter says that up to a quarter of the business now comes via the Choice network.

Meanwhile, expansion of the group's 56-strong chain continues apace.

Profits of pounds 5.4m this year would put the shares, down 2.5p at 154p, on a forward multiple of 13. Reasonable value.