Derek Pain: 'My two new hotel acquisitions bed down in the portfolio'

Peel Hotels and Safestay are both making profits and are paying dividends

Two very different hospitality companies have joined the No Pain, No Gain portfolio. They are Peel Hotels, a traditional provincial hotel group, and Safestay, a relative newcomer intent on creating a chain of what are called "boutique hostels".

I am a superstitious old soul and therefore decided to add two constituents in one go rather than risk the portfolio's strength by alighting on "unlucky 13". Peel has been on my shopping list for some time; Safestay has come to my attention in the past few weeks. Both are making profits and are paying dividends. Experienced hotelier Robert Peel is the man behind the eponymous chain. It embraces nine hotels, including The Bull at Peterborough and The Crown and Mitre in Carlisle. After some years of disappointing results the group reported pre-tax profits up 180.6 per cent to £959,000 for its last year and promised a return to the dividend list with a 1.5p-a-share payout. Mr Peel has spent a lifetime in the hotel industry.

Provincial hotels are performing much more strongly than in the past few years and he says the current year has commenced with a "sustained improvement in turnover", and with debts (nearly £11m) being reduced, he expects further progress. The shares are not cheap at 100p – about a five-year high – capitalising the business at £14.1m. Mr Peel has nearly 40 per cent of the equity with his brother, Charles, who helped create stockbroker Peel Hunt, sitting on 20 per cent.

Safestay is a completely different kettle of fish. Started three years ago, it arrived on the stock market last year, raising £4.8m. Since then it has gathered in a further £3.3m. Initially, it had one hostel in Elephant and Castle, south London, and has since acquired one in York. It is near to launching another in Notting Hill, west London. Pre-tax profits in its first year of quoted existence came out at £137,000, from turnover up 19.8 per cent at £2.3m. The Elephant and Castle venture was almost entirely responsible for this maiden performance, which prompted a 0.3p-a-share dividend. The aspiring business is on the lookout for further properties in this country and could eventually invade the Continent.

Safestay, in effect, offers upmarket hostels – reported to be between backpacker dives and hotels – that cost guests less than £20 a night for beds in dormitories sleeping between two and eight people. The Notting Hill venture, with a £2m refurbishment, could accommodate up to 360.Heading the operation is property man Larry Lipman, the managing director of the quoted Safeland group, which was deeply involved in the formation of the hostel business.

Safestay was floated at 50p a share; the recruitment price is 70.5p, capitalising the company at £13.6m, a little below Peel. One stockbroker, Westhouse Securities, has a 120p target price on the shares.

Finally another hospitality group – Whitbread, a constituent of the portfolio for the last seven years. The year's pre-tax profits bounded from £347m to £463.8m with its Premier Inn budget hotels chain and Costa Coffee scoring impressive advances. The dividend is up 19.4 per cent to 82.15p a share. But any froth was blown off the shares by the pending departure of chief executive Andy Harrison, who has guided the group since 2010. Still, as Keith Bowman, at stockbroker Hargreaves Lansdown, says: "Whitbread is still highly regarded."