Bid activity to increase City analyst predicts

Regent Inns, Hardys & Hansons and Young's are the obvious possible bid targets as sector consolidation gathers pace, a City analyst has claimed.

Rumours of bids for Whitbread and Mitchells & Butlers have sent their share values soaring in recent weeks and the trend towards consolidation is likely to engulf others public companies.

Paul Hickman, analyst at KBC Peel Hunt, said: "Not since the 2003 disappearance of the quoted fitness sector and restaurants, has there been such a tremendous impulse towards public-to-private activity in the leisure sector."

About his top three list of add-

itional possible targets, he said:

Regent Inns: "The strategy at Regent is to be an on-market consolidator. Arguably this has not only failed so far, but also is becoming absolutely hopeless in the current conditions. The experience with Urbium and Inventive may be repeated but at six times Ebitda this is an increasingly obvious target itself."

Hardys & Hansons: "Although the share price currently tracks the £182m revaluation (of its assets) closely, that only represents 10 times Ebitda. This is acknowledged as a high-quality estate that has wisely been investing in large food houses for years. It could well become a competitive bid between say Wolverhampton and Greene King, attracting a 10% premium at 800p a share.

Youngs: "The major value resides in the real estate. Against net asset value of £13 we estimate the potential brewery realisation at a minimum of £5 and the hidden revaluation of the pubs at a minimum of £8. After allowing for the cost of relocating the brewery that still adds up to a minimum fair value of £23, and we set a median target of £30."

Hickman added: "Consumer uncertainties, rising costs and regulatory obstacles such as smoking are likely to sustain lack of satisfaction in investment performance on-market. When the best in class, Mitchells & Butlers, can only absorb cost increases, the traditional rationale for earnings growth is challenged. These are the conditions for successful bids."