MARKET COMMENT
Small-Caps With P/Es Under 7

By Maynard Paton (TMFMayn)
December 9, 2003

The FTSE Small-Cap Index may be have gained 35% so far this year, but tinpot bargains can still be found. These three smaller companies are expected to grow profits this year and next, yet languish on price to earnings (P/E) ratios of below seven.

1. Regent Inns (LSE: REG)

Regent Inns is one of a number of pub groups that have endured troubles in recent years. Though the owner of the Walkabout chain reported continuing revenues up 29% in its latest annual results, like-for-like sales at the Aussie drinking holes were last seen running 6% below last year's levels. What's more, net debt of £81m and interest payments covered a slim four times prompted a £18m fund raising in November. Still, the cash injection and a revamping of unbranded outlets have prompted brokers to forecast a small profit revival in 2004, which should maintain the dividend and support an attractrive, twice-covered 6.7% yield. Read more | FREE annual report

2. Molins (LSE: MLIN)

The late 1990s proved difficult for Molins, a manufacturer of tobacco and packaging machinery, with loyal shareholders seeing their 22p dividend sliced to 6.5p by 1999. But fresh management have turned things around, with profits more than tripling during the last three years. Aided by recent acquisitions, the recovery is set to continue, with one broker believing earnings could grow by 23% during 2004. Dividend cover of over four times and little in the way of borrowings suggest investors will soon see big improvements to their 2002 payout of 11p. Read more | FREE annual report

3. Dart (LSE: DTG)

A former growth company, aviators Dart promptly nose-dived following the well-documented turbulence in the airline industry. A recent addition to the firm's stagnant freight and charter services is Jet2.com, yet another name offering low-frills passenger flights. This operation however supports the prospect of double-digit earnings growth in the next year or two, though management say forthcoming full-year results remain 'difficult to predict'. The accounts aren't that great, showing margins a wafer thin 4%, quite a bit of debt and some rather hefty expenditure on new planes. Interestingly given the market's strong rebound, Dart is one of the few shares still trading a fraction above its 52-week low. Read more | FREE annual report

Key details

Share           Market    Share    Forecast growth     Prospective 
                value     price     EPS      DPS      P/E     Yield
                 (£m)      (p)      (%)      (%)               (%)

Regent Inns       88       79       +8        +1      6.9      6.7
Molins            66      329       +9       +27      6.6      4.3
Dart              43      126      +16        +0      6.9      4.9