Rank is no longer a steal but its dividend makes it worth a punt

Rank may not be the behemoth of the leisure industry it once was, but it is a sizeable beast nonetheless. After a long disposal programme that saw it shed its Butlins holiday camps and Pinewood studios, the group is left with Hard Rock Cafés, Grosvenor Casinos and Mecca Bingo halls to vie for the leisure pounds.

Rank may not be the behemoth of the leisure industry it once was, but it is a sizeable beast nonetheless. After a long disposal programme that saw it shed its Butlins holiday camps and Pinewood studios, the group is left with Hard Rock Cafés, Grosvenor Casinos and Mecca Bingo halls to vie for the leisure pounds.

A trading update yesterday reassured that Rank has profited from the first stages of deregulation in the gaming industry. Its blackjack players are now allowed an alcoholic tipple, live entertainment can be provided to take punters' minds off a losing streak, and opening hours can be longer. New gaming machines such as electronic roulette have also helped. The only problem with the promised liberalisation is that it cannot happen quickly enough to satiate the City, which lost no time in pricing the upside into Rank's shares.

Down at the bingo halls there were signs the blue rinse brigade is playing hard to get now Rank has cut back its cut-price offers. Bingo will never be an explosive growth story, but a change to the duty regime next year, with a switch to a tax on profits, should be positive.

The prospects are darkest for Rank's Hard Rock division, where the lack of tourists keen to buy kitsch merchandise is still taking its toll. Rank said trading followed the pattern of the first half, when like-for-like sales fell 6 per cent. The main positive came from a revamped menu, which helped food and drink sales to edge higher. In an effort to maximise potential from a brand that appears increasingly tired, Rank is opening "low-spend" Hard Rock casinos in the UK and letting US franchisees open hotels.

A recent joint venture with a Taiwan company has left Rank's Deluxe film processing business looking more lively than it has for a while, but though the division generates lots of cash useful to back the dividend, its growth prospects are limited.

On a price-earnings ratio of about 11 times, the shares are no longer the steal they were earlier this year. Down a ha'penny yesterday to 283p the stock has had a good run, but is still worth buying for the 4.6 per cent dividend yield.

MFI is not cheap, but worth holding

MFI Furniture is getting a make-over of which Carol Smillie or Laurence Llewelyn-Bowen would be proud. It is forfeiting £20m of profit this year to pursue a programme of store refits that will spruce up its out-of-town furniture warehouses and introduce a wider range than the build-it-yourself kitchens and bedrooms. You can get a bathroom and a sofa in many MFI stores these days.

It is a make-over that is quickly providing the desired boost. Sales in the UK retail business in the first 45 weeks of 2003 is 12.2 per cent ahead of last year, the group said yesterday. Like-for-like turnover, which strips out the new store space, are up 7.1 per cent.

MFI shares were down 7p to 135p yesterday, though, because the pace of growth has slowed in recent months by more than some forecasters had been predicting. It highlighted once again the group's sensitivity to consumer confidence. If homeowners fear for the economy and their jobs, they aren't going to be splashing out on a new kitchen.

That said, the potential impact on the group of a sharp consumer spending slowdown next year can be overstated. The benefits of the refits will mitigate slowing like-for-like sales, while profits should accelerate in 2004, when the capital expenditure is through. After that, there could be growth from expanding the smaller high street stores.

MFI is also having success in France, where the management is able to tell a similar turnaround story, and there is also the soaraway success of Howden Joinery, which sells bits of kitchens to tradesmen. This format accounts for a quarter of group sales already, grew underlying sales at 28.2 per cent in the year to date, and is being launched in the US, too.

MFI shares aren't cheap, unfortunately, trading on 15 times this year's forecast earnings, falling to 13 times next year. But it is a fair price and the stock is worth holding.

Galen a buy despite concern over HRT treatments

Newspaper headlines over the summer which proclaimed "Hormone therapy linked to breast cancer, heart disease and strokes" have been unhelpful to Galen's share price, as you might expect for a drug company which specialises in HRT. Whether the stories, based on a US study, actually impact Galen's business, is yet to be truly tested.

The Northern Irish company was trying to reassure investors yesterday, when it published annual results which showed a leap in profits. It has moved to focus on high-margin drug sales and disposed of contract manufacturing and other services businesses. In its ongoing drug products business, sales were up 26 per cent and operating profits up 47 per cent in the year to 30 September.

The trial which sparked the scare related to prolonged treatment with a particular hormone in combination with others. Galen reckons doctors will switch patients to other drugs, and any wider fallout in public appetite for HRT will be short-lived. Sales of its own products, which do not use the hormone in question, have not been noticeably affected, it said.

Maybe so, but the risk remains, particularly since its flagship new product, an intra-vaginal ring delivering oestrogen, is not yet on the market. Although US regulators have said it can be approved, they are deliberating what safety advice should be printed on its label and the labels of rivals.

If that label is not too harsh there should be no stopping Galen next year. It has developed new uses for existing drugs, and will file several for approval, while continuing to drive sales growth of novel HRT and antibiotic products in its portfolio. At 457.5p, on 13 times forecasts for this year's earnings, the shares are a buy.