The Investment Column: Green shoots at Greenalls

Investors in Greenalls breathed a sigh of relief yesterday. Growing concerns that its pub estate in the North-west was going from bad to worse following a warning on summer trading, had sent the share price spiralling downwards in the last few months. But Greenalls' announcement that sales are beginning to recover calmed traders' nerves and the shares jumped 14p to 422.5p.

Nevertheless, Greenalls' problems are far from over. It is increasingly clear that the group paid too much for the Boddington pub estate two years ago. It has been saddled with more than its fair share of poor houses, which are struggling to compete with the themed pubs that are springing up around the country.

That said, Greenalls is doing the right things to overcome the difficulties. Having been guilty of underspending on its own brands, the group is doing all it can to catch up. It has sold off some of its worst pubs and the policy of shifting some of the poorly performing managed outlets to its tenanted estate is already paying off.

Even so, the investment will take time to bear fruit and Greenalls may have difficulty getting good locations in the scramble for new sites. All this means the short-term earnings outlook for the pub estate remains subdued.

Greenalls' leisure businesses should more than take up the slack. Its De Vere hotel operation and travel lodges are going great guns, buoyed by the upswing in the provincial hotel market which still has some way to go. The Village Leisure hotel and health club business is another jewel, and a chain of fitness clubs is on the way. Analysts forecast current year profits of around pounds 170m, putting the shares on a prospective p/e ratio of less than 10. If Greenalls' management fails to come up with the goods, industry predators are lurking. Good value.