Barbados hotels hit stormy spell

The Investment Column

St James Beach Hotels, owner of four upmarket properties in Barbados, has proved a disappointing vehicle for investors hoping to cash in on the boom in the hotels market. The shares have fallen almost in a straight line since hitting a peak of 151p in August last year and now sit at an all-time low after falling 14p in the wake of yesterday's profits warning. At 100p they are 20p below the level at which they were floated two years ago.

St James has revealed that cost over-runs, a stock write-down and the tightening of what has proved an insufficiently conservative depreciation policy will savage profits for last year. Instead of the widely expected figure of pounds 3m for the 12 months to last March, the group is now promising "not less than pounds 1.4m", well down even on the pounds 1.92m recorded in 1994-95.

Executive chairman Ray Horney, who with his wife controls around 58 per cent of the company, is confident that they now have the problems under control, aided by a new finance director and much stricter financial controls. He points out that the underlying picture remains strong. While profits slumped last year, sales were well ahead of budget - outside estimates suggest they could be more than 50 per cent ahead of last year's pounds 10.4m - and occupancy rates are above 90 per cent.

The hope is that St James has anticipated the worst in these figures, but doubts inevitably remain. The group has been spending aggressively to expand and renovate its hotels, but clearly it could not cope with rate of growth and costs have run wild. Of last year's profits shortfall, only pounds 300,000 related to stock and depreciation.

In retrospect, the recent extensive management changes should have rung alarm bells with investors. Added to that, Mr Horney's other business dealings have not always met with huge success. Earlier this year, his Regent Corporation house-building group revealed that it had uncovered "significant errors" in its accounts alongside losses and a boardroom clear-out.

That said, St James controls a fifth of the luxury hotel market in Barbados, an area in which Forte and Lonrho are interested, and claims asset backing of 132p a share. It is also planning to raise last year's dividend a fifth to 4.8p. The risks remain, but the brave should hold on.