The Investment Column: Boom is back for Stakis
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Your support makes all the difference.THE HOTEL business is always shifting from feast to famine and back again, and the City's perception of the sector tends to suffer from the same mood swings. After a boom in 1996 which spawned a glut of flotations, hotels spent last year in the doldrums. This year, hotel groups such as Stakis are suddenly in favour. The Scottish group's share price has risen by over 50 per cent since January.
A glance at the interim results, released yesterday, shows that investors' faith is well founded. Operating profits rose by 49 per cent to pounds 46m on turnover up 28 per cent to pounds 181m, and the shares duly ticked up another 4p to 143p.
True, Stakis is riding an industry boom that could easily turn to a bust. Rather ominously, chief executive David Michels now points out that occupancy rates - which rose from 67.5 per cent to 73.7 per cent - are now higher than they were during the famous boom of 1989.
Stakis does not believe that history will repeat itself, however, and is investing merrily in new projects. It will spend pounds 90m developing the London Metropole and is planning to build about three new four-star hotels a year. Management deals with a US hotel investments group are also in the pipeline.
Meanwhile, the company is also diversifying. The casinos, which are drawing increasing numbers of punters, reported a 77 per cent increase in profits to pounds 6.6m. Meanwhile, profits at the Livingwell health club unit more than doubled.
With strong cash flow and gearing still low, Stakis can afford to expand. The problem, however, is that no matter how well they are run none of its businesses can ultimately escape the economic cycle. If a downturn arrives demand for hotels, casinos and health clubs will probably all dry up at the same time. Stakis remains positive about the future, as does the City, which predicts full-year profits of around pounds 74m. On a forward multiple of 18, however, the shares are high enough.
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