Book into First Choice for a recovery; The Investment Column

It's been quite a year at First Choice, the former Owners Abroad tour operator that sits uneasily in third place behind market leaders Thomson and Airtours.

The revolving doors have been spinning so violently in the company's Sussex boardroom that it came as no surprise yesterday to have results presented by a new executive deputy chairman, who introduced a new chief executive and a finance director who is leaving next month for the same job at Manchester United.

The figures they showed investors were a pretty dismal affair - profits of just pounds 10m for the year to October were a lot better than the pounds 1.3m achieved in the previous year which included the disastrous summer of 1995, but compared with sales of more than pounds 1bn they represented a pathetic return.

Airtours generated a pre-tax margin of more than 5 per cent in more or less the same period, setting a stretching benchmark for its smaller rival. No surprise, in those circumstances, that the dividend should be pegged back to what the company hopes is a new base.

The new chief executive, Peter Long, has actually set himself a slightly less demanding margin target, a return on sales of 4 per cent within two or three years.

But, given the volatility of the holiday market, a persistent mismatch between the company's aircraft fleet and the holidays it sells to fill those seats, and continuing problems in Canada where First Choice makes a quarter of its sales, clearing that hurdle will be a real achievement.

The good news is that the City feels confident that the company is finally in the hands of someone who is in with a shout of turning it round.

Francis Baron, the previous head, who walked off with pounds 640,000 after falling out with other directors, was seen as having too little experience of the business to compete seriously in a cut-throat market where non- specialists can and do get taken to the cleaners.

First Choice has already sold 25 per cent of its capacity for next summer, better than the 17 per cent it had reached this time last year.

Bookings are 42 per cent up on last year's admittedly depressed comparable figure. The company has a credible brand and is not embroiled in the Monopolies and Mergers Commission inquiry into the industry because it has no ownership link with a travel agent, unlike its bigger rivals. Financially it appears to be in reasonable shape and it knows it could always sell its difficult Canadian operation to Airtours if the need arose.

On the basis of forecast profits of pounds 25m in the current year, the shares, up 4.5p yesterday to 63p, trade on only 10 times expected earnings per share. Getting up to the targeted margin would put the shares on a multiple of only 5 or 6.

Airtours and Thomson are the better companies, but First Choice offers real recovery potential.