Copthorne's rates have room to grow

The Investment Column

The hotels sector has been under a cloud recently due to the City's concerns over growth in capacity and the effects of the strong pound on overseas visitor levels to London.

But while these reservations have hit shares, the operators themselves have stayed jolly about prospects. Stakis reported good figures last month and yesterday Millennium & Copthorne did the same.

The 24-strong hotels group, which has proved to be one of the best of last year's crop of new issues, enjoyed a 53 per cent increase in pre- tax profits to pounds 19.9m in the six months to June.

On a pro forma basis, which assumes the group owned its New York hotels for the whole of the previous year, operating profits rose 37 per cent to pounds 27.3m.

The figures are particularly impressive as they include pounds 1m of closure costs for the Commodore hotel in Paris, which will undergo a nine-month revamp.

So far Copthorne seems to be shrugging off the worries of the sector's doomsters.

Finance director David Cook says that as 75 per cent of its customers are business travellers, the strength of the pound has a limited effect. And 60 per cent of visitors to its London hotels come from the UK.

Copthorne disagrees with reports that suggest an additional 10,000 beds are coming on stream in the UK over the next few years and says most of the additional capacity will be in the peripheral areas of London rather than in the centre of the capital.

Occupancy on a pro forma basis increased by 3 percentage points to a healthy 76.9 per cent, which provides limited headroom. But the upside is that the group is able to increase room rates, with the average rising by 5 per cent to pounds 80.70.

Expect more rate hikes and some selective acquisitions from the new managing director, John O'Shea.

On upgraded forecasts of pounds 48.5m for the full year, the shares trade on a forward rating of 15.

At 378.5p, up 10p yesterday and a full 100p on the 278p issue price last April, the shares are worth a look.