Hilton yet to pay out on potential

Second-half profits leap lifts United Business; Easynet making steady progress towards a profit

David Michels, the poker- playing chief executive of Hilton Group, was dealt a patchy hand last year, as we can see from yesterday's 2003 results.

The group's Ladbrokes betting and gaming business produced yet another royal flush, with operating profits up from £149.3m to £214m. Hotels, however, proved not much more than a disappointing pair, as operating profits fell from £212.1m to £146.5m.

The question is whether investors should take a punt on a company that has seen its shares respond strongly over the past 12 months thanks to hopes of recovery in the hotels market and a potentially big profits boost to gaming from the proposed deregulation.

Certainly yesterday's results show that hotels continued to struggle in 2003, not surprisingly given it was the year of the Iraq war, Sars and economic slumber in large parts of Europe.

A key indicator of a hotel company's health is revenue per available room (rev par). In 2003 Hilton saw its rev par figures fall in almost every territory it trades in, including the UK, Europe and Africa, Asia Pacific and the Americas. The one exception was, perversely, the Middle East, where rev par rose 12.6 per cent to £36.21. In the UK, London saw rev par fall 5.4 per cent to £65.90 while the Asia Pacific region saw the figure fall 4.1 per cent to £48.68.

Betting and gaming, luckily, filled the holes in Hilton's numbers, with all activities showing gains apart from Vernons, the pools business which is something of a museum piece. Hilton Group's turnover was swelled from £5.5bn to £8.9bn in 2003 thanks to fixed-odds betting machines installed in its chain of bookies. The machines generate huge turnover but only about a 3 per cent profit margin.

That said, in a tough year, earnings per share was maintained at 13.4p and the dividend at 8.92p a share. At 14.7 times this year's earnings, the shares are fully valued, especially as there is still no prospect of a demerger. Until that time, Hilton will continue to be a tricky beast to value and punters should choose to hold.

Second-half profits leap lifts United Business

LIKE REUTERS, United Business Media says it has passed the now famous "inflexion point" - the point at which trading improves, following a gruelling recession in the media sector.

Full-year results from UBM yesterday showed a rebound in the second half. The company has three legs, business-to-business publications (CMP Media), market research (NOP), and PR Newswire, a service that releases company announcements.

UBM reported pre-tax profits up 42 per cent at £103.3m, for the year ended 31 December, although still weighing on the group are dollar weakness and the lack of a recovery in advertising in the technology magazines that are part of the professional publishing division. Ad volumes for continuing technology publications were down a disappointing 8.9 per cent, year-on-year, for January.

In the second half, underlying CMP Media revenues were up 6.5 per cent, while PR Newswire and NOP saw a 5 per cent uplift. Second half margins firmed to 14.3 per cent, from 7.2 per cent a year ago, and revenues grew almost 6 per cent.

These were the healthiest trends seen by the company in three years. UBM cut costs in the downturn. Before that, the company sold off its consumer media businesses - its ITV interests and Express Newspapers. UBM secured good prices for these but found itself serving a business-only market, just as companies began to feel the pain of the downturn.

UBM is now very well geared to the recovery, with 75p of each additional pound of revenue in the hi-tech publications dropping to the bottom line and 90p of each pound for PR Newswire.

The turnaround has not gone unnoticed by the stock market, with UBM shares up from 190p over the past 12 months to close yesterday at 565p. That's a forward multiple of over 20 times but given the positive signals, there is still upside. Buy.

Easynet making steady progress towards a profit

AS THE broadband story has gathered momentum, with even BT putting it at the heart of its growth strategy, so too has Easynet's share price which has more or less doubled in the past 12 months.

The company provides business customers with high speed access to the internet, web hosting and internet consultancy. Customers include Aventis, Kenwood and Carl Zeiss.

Such is its confidence in customer growth, it is planning to invest in getting its kit into another 80 local telecoms exchanges this year to meet the expected demand.

In the meantime the financials seem to moving in the right direction, although the figures were helped by an exceptional gain of £9.4m after releasing a bad debt provision.

Sales were up 27 per cent to £116m in 2003 while the underlying loss reduced to £5.7m from a loss of £22.6m the year before. The company made an underlying profit in December.

Better still, it has £72m of cash left, having gone through £30m this year. It expects to finish 2004 with about £50m and is predicting it will be cash flow positive next year.

Two other issues have also been cleared up. A legal dispute with Viatel has been settled while the Marconi stock overhang is also a thing of the past.

But it is worth remembering that analysts aren't forecasting Easynet to make a profit until 2006 at the earliest. The risks attached to investing in more exchanges and the recent rally in the shares offset the improved prospects, making it a hold.