BPB positioned to build on upside

Potter helps Bloomsbury broaden its magic; City Centre Restaurants back on the menu

There were a lot of companies who made ill-judged acquisitions at the top of the market in 2000 and who are still picking up the pieces now. Most of them are in the technology or telecoms arena, though; not many are in the sedate world of plasterboard.

BPB (it used to stand for British Plaster Board) has been in that unfortunate position, making a big North American acquisition at the high point for US plasterboard prices. Only now does overcapacity appear to have been squeezed out of the industry, and BPB's North American operations clawed their way back into profit.

Investors are therefore naturally keen to keep abreast of the latest US selling prices for plasterboard, and there would have been a little leap of the heart yesterday when BPB said they fell back over the winter. You can get 1,000 square metres of the stuff – which forms the internal walls and ceilings of most of our new houses – for $86 at the moment, compared with $160 in 2000.

The upshot of yesterday's trading update was that most analysts had to shave their profit forecasts for the financial year just closing. As for the coming year, much hangs on how much of a 10 per cent price rise, being imposed in the US to coincide with the spring surge in building activity, actually sticks.

The omens are still broadly okay. Most plasterboard companies seem keen to push prices up and, industry-wide, some 85 per cent of factory capacity is being used. On the demand side, housebuilding activity seems to be robust, in the US and the UK market, too. That might change if there is a serious correction in the housing market, but investors need not panic yet.

BPB's European operations are trading well enough that the economic problems in Germany and Poland are not hitting the figures too badly. Cash flows are very strong, with interest payments covered seven times over and plenty of scope to improve a dividend that already gives the shares a 5 per cent yield. Brave restructuring efforts and another small US acquisition have positioned that business well, so the upside potential is still significant. Buy.

Potter helps Bloomsbury broaden its magic

Everybody knows what sensational success JK Rowling's Harry Potter books have enjoyed. Yesterday was Bloomsbury Publishing's opportunity to prove it has greater depth, and it makes a convincing case.

For the first time, the company broke out turnover, for its 2002 results, by type of book, into adult, reference and children's publications. As you might expect, children's books made up 53 per cent of sales, but at £38m, it was 7 per cent lower than 2001. Last year there was no new Harry Potter release, though the four existing books remained at the top of the children's charts. Group pre-tax profits, before goodwill, were up 19 per cent to £11.1m.

The adult list was driven by the success of Schott's Original Miscellany, Joanna Trollope's Girl from the South and Donna Tartt's The Little Friend. Reference put out the huge Business: The Ultimate Resource.

The company has committed £11m to authors, in advances, for forthcoming books. New hardbacks are due this year from Margaret Atwood, Sophie Dahl and Ben Schott.

The exciting development to come this year is obviously the fifth Harry Potter book, The Order of the Phoenix. Already, advance orders of 8.5 million have been placed.

Bloomsbury has a good record with discovering talent, having found Ms Rowling and Ben Schott. It has also pulled off acquisitions, including four in 2002, especially in the reference market. Expect more of these. A dividend increase of 14 per cent, to 7.17p, signals confidence in the future. This is a media stock with no exposure to advertising revenues, so it offers defensive qualities that the sector generally lacks.

Bloomsbury shares, up 7.5p to 740p, have had a decent run since September. On a forward multiple of 15, the Harry Potter phenomenon is priced in but the broadening revenue base on top of the guaranteed success of tales of the trainee wizard make this stock a hold.

City Centre Restaurants back on the menu

A couple of years ago City Centre Restaurants was well and truly off the menu as far as the stock market was concerned. But the group, whose brands include Garfunkels and Caffé Uno, has started to look more appetising since Alan Jackson was appointed executive chairman in 2001. He has focused on three key targets: high returns on investment, good growth prospects and distinct barriers to entry.

The group's biggest growth area is its Frankie & Benny's brand which is located at cinema multiplexes and bowling alleys. It has 75 outlets with a further 12 to 15 set to open this year. Good relationships with developers help it shut out rivals. The only potential problem might be on the high street where the company admits that anyone can set up a rival eaterie. Yet it still has chains such as Garfunkels and Est Est Est.

Profits were up 8 per cent to £16.8m in 2002 and since the turn of the year like-for-like sales have been running 6 per cent higher than last year.

City Centre should be resilient in a downturn, since it is far from the posh end of the market. The average customer spends just £12. The shares were up 4p at 55p yesterday and on a price-earnings multiple of nine. Not as cheap as chips, but worth a nibble.