Sweaty nights ahead for Luminar

Renishaw doesn't measure up too well; Zi Medical may be worth cash injection

It is hard to be really bullish about nightclubs as a long-term investment. This is still an industry with significant overcapacity. Relaxed licensing laws have meant there are more late night bars competing for drinkers who used to be forced to the local club. And then there is the problem that the clubs are frequently half empty during the week, especially now debt-burdened students appear to be pinching their pennies.

It is hard to be really bullish about nightclubs as a long-term investment. This is still an industry with significant overcapacity. Relaxed licensing laws have meant there are more late night bars competing for drinkers who used to be forced to the local club. And then there is the problem that the clubs are frequently half empty during the week, especially now debt-burdened students appear to be pinching their pennies.

Luminar - the UK's biggest quoted nightclub owner, whose brands include Liquid as well as Chicago Rock Cafe and Jumpin Jaks - found itself with a nasty hangover when the music stopped in 2002. Since then, the burly bouncer-turned-chief executive Steve Thomas has had to promise it is chucking out time for some of the weaker, unbranded venues. The slimmed-down group will focus on four nightclub brands, with rebranding going alongside refurbishments at what had become a run-down estate.

This self-help is progressing slowly, though, and a 3 per cent like-for-like turnover decline over Christmas showed the scale of the challenge, even if it was no worse than expectations.

It is easy to see the attraction of a move into casinos, then. The high valuation put on gaming operators such as Stanley Leisure compared with Luminar certainly suggests a higher Luminar share price when it signs up a joint venture partner. The rumour is this will be Accor of France, whose expertise will be handy when gaming deregulation allows Luminar to convert parts of its largest venues into casinos.

One worry is that the necessary legislation might be held up in Parliament. Another is that a wave of investment across the gaming industry will mean too much capacity chasing too few punters.

The City is positive on the recovery story at present, and we were out of step by warning readers off last May, when the shares were down at 384p. The stock, on 8 times next year's likely earnings, is still cheap but the long-term challenges suggest it is only a hold.

Renishaw doesn't measure up too well

Good news from the manufacturing sector, this time from Renishaw, a maker of precision measuring tools for use across a range of industries: in car factories, in laser surgery, in moulding artificial joints, in restoring great paintings.

The launch of new products, and the move into new east European markets, are paying off handsomely, while ta pick-up in the global economy more generally is also feeding through. The group brought in pre-tax profit of £6.6m in the six months to 31 December, compared with £6.5m in the equivalent period last year.

An increase in capital expenditure explains the disappointing modesty of the improvement when compared with a sales rise of 14 per cent. It also shows how Renishaw has been robust enough and confident enough to expand even throughout the economic downturn.

The interim dividend was raised to 5.61p, suggesting an unexciting full-year yield of 3.2 per cent at yesterday's share price of 548p. The second half is more important for the profit outcome for the whole financial year, but Renishaw is proceeding optimistically.

We were right to advise holding the shares at 498p last July. But now it is questionable whether Renishaw can benefit as dramatically from the gathering economic rebound as peers who suffered more extremely in recent years.

And that would suggest that its premium price-earnings rating of 26 times is now too high.

Avoid.

Zi Medical may be worth cash injection

What an extraordinary few weeks for shareholders in Zi Medical. The tiny technology developer saw its market value triple since the start of the year, thanks to the launch of its first product, a device that checks hospital drips are working properly. Baxter, one of the world's biggest medical devices groups, is selling the product for Zi and another big company wants to sell a second product when it is ready a year from now. This is a syringe pump, able to drip-feed drugs into the body over long periods.

These look to be good bits of kit, this is a good pedigree of company, and probably it should end up being taken over by a bigger player in the devices industry. The question is, is it now overvalued?

The admission yesterday that it is considering a fund raising which would have to be at a discount to the current share price would seem to suggest it is. It is difficult to get a handle on likely sales for its two most advanced products (perhaps £6m a year by 2007) and the company will be loss-making for several years to come. With a market value of £13m, the company has raced too far.

Widows and orphans should, of course, steer clear of such an early-stage company with so few products and with such a great dependence on big and more powerful partners. But speculators who have missed out on Zi so far should take the opportunity to climb aboard if a fund raising is announced at a price significantly below last night's 23p a share.