Falling dollar hits UK firms

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The Independent Online

FOr The past three years the dollar has dropped against the pound. This slide is expected to continue and the effect on UK companies is to depress the earnings of those that have large operations in the US. Morgan Stanley estimates UK companies get 25 per cent of sales from the US.

This is particularly acute for the fund manager Amvescap, which gets about 90 per cent of its profits from the US. Morgan Stanley estimates that UK investors have lost £3.3bn in the past three years from exchanging dollar dividends into sterling. HSBC, Standard Chartered, BP, AstraZeneca, Lonmin, Rio Tinto, BHP Billiton and Carnival are in this group.

But for companies that have physical operations in the US, their costs will also be in dollars, which lessens the impactonearnings.With the dollar expected to fall further, the situation can only get worse.

Close Brothers

Things are looking brighter for Close Brothers, which posted a 14 per cent increase in profits for the year. The mainstream banking division is now providing two-thirds of its profits, up from only a third in 2001 when investment banking had brought in the cash. Close will always be highly geared to the stock market, despite the solidity of its regular banking business. But the recovery in the markets has already been priced in. Hold.

Scottish Radio Holdings

The radio industry suffered a set-back last week, with a downbeat trading update from Capital Radio, knocking shares in the sector. Scottish Radio Holdings' trading statement showed there is nothing much to worry about, at least at its local end of the market. Capital is much more dependent on national advertising revenues. However, SRH shares sit on a forward multiple of 22, which seems high enough.

Madisons Coffee

Madisons Coffee, the AIM-listed coffee bar operator, continues to live in the red and it seems it will be some time before this company will see anything other than its coffee in black. Although Madisons is now cash generative for the first time since going public in 1998 and has some of its individual stores showing operating profits, the company still has a central overhead that it cannot cover. Sell.

Abbey National

Abbey National is changing its consumer brand name. As plain Abbey, it is rebranding to look more modern and slimming down its product range and it is determined to put its past behind it and improve revenues by next year. Abbey still has a lot to prove, but it does have a large, loyal customer base that just might start to buy more of the bank's products if the strategy comes off. Hold..

Capital Radio

Capital Radio managed to remove a significant uncertainty by announcing a big-name presenter to replace the outgoing Chris Tarrant on its flagship station. In Johnny Vaughan, Capital has gone for a largely untried entity in the position and someone who comes with his own very individual style - which certainly gets up the noses of some people. However, Mr Vaughan is a very accomplished performer and he will bring new listeners to the stations. Hold.

Clinton Cards

Sales, on a like-for-like basis, were up 3.6 per cent in the six months to 3 August - slightly beneath the 4.3 per cent rise last time - while current trading has accelerated. In the seven weeks to 21 September sales were up 3.9 per cent - providing reassurance that the hot summer weather that has hurt others on the high street has not been a real problem for Clinton Cards. Buy.


The construction and water group AWG is full of potential, both upside and downside. It has opted for a "high leverage, low equity" approach to funding. This means it has lots of debt and not many shares, guaranteeing a position in the "high risk, high reward" bracket. It is trading at around 13 times earnings, which is not that high. But with such a small equity base, volatility is a risk but the possible rewards considerable. Hold.

British Biotech

British Biotech has acquired Vernalis, a company with one product for migraines and not much else. The deal, completed in the last week, allows British Biotech to ditch its historic but tarnished name and it is now to be called Vernalis. The slimmed down Vernalis pipeline is not wide enough or advanced enough to compete for investment funds with sector stars such as Alizyme. Vernalis shares are still a wild gamble.


BTG, the technology group that rode the dot.com wave but has since fallen back to earth, is starting to get noticed again thanks to one of its products - Varisolve, a surgery-free treatment for varicose veins.

BTG has developed a special foam-like substance that can be injected into the vein in an outpatient procedure that can be carried out in a lunch break. But with a loss forecast this year of £22m,. this is a long term buy.

Ted Baker

Careful brand management has helped retailer, Ted Baker, to continue its steady progress towards its stated goal of becoming a global label. A strong performance in the UK across both its retail and wholesale operations, announced in interim figures, was complemented by the continued successful expansion into the US. . It may not be the cheapest stock on the retail rack, but there is still some value to be had. Buy.


BP gave out mixed news in a third quarter trading update, with an improvement in refining margins flagged up but marketing, and petrochemicals are down a little. There was a lack of really positive drivers from the announcement but the bottom-line was that third quarter profits are set to rise and come in strongly and production will be similar to that of the period last year. The shares have to fall below 400p before looking attractive.

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