Private Investor: Rolls-Royce is flying high. Of course it is

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The Independent Online

A few years ago, I was told by a colleague of mine that "no one ever made money out of Rolls-Royce". At the time, it looked as if he was right. I'd had a soft spot for the aero-engine maker's shares ever since it was privatised in 1987, at 170p each. For about 15 years after that they didn't do very much. Then came September 11, and they tanked. At the time, it seemed that the future of the world's aerospace industry was, well, fragile.

Although I'd bought some shares in Rolls-Royce at privatisation, I sold them again a few years later. Yet I always hankered after that famous name and I always thought that a company with such a fine tradition of engineering excellence ought to have better prospects than the City imagined it did.

Admittedly, British manufacturing hasn't always been the best place to be financially, but Rolls-Royce is a little different. I don't pretend to understand the stuff it does, but I do know that it is as far away from the sort of batch production of identical items (think cars, microchips, hair dryers) as you can get.

While the British have proved time and again that they are no match for anyone in mass production, when it comes to the hi-tech end of things - where flair and design and advanced applications are the order of the day - British companies can compete with the best of them. Nowadays, there's also the added benefit that a company in that position is unlikely to find itself being driven out of business by the Indians or the Chinese.

So I've been an enthusiastic buyer of Rolls-Royce since before September 11, but I bought many more shares in the aftermath of that disaster. I didn't see why the world was suddenly going to stop flying, and certainly not in the long term. Rolls-Royce's business may be dangerously cyclical, but there are limits to its vulnerability, as we have seen.

The point when the shares fell to less than 100p towards the end of 2001 was obviously the best time to buy but, given their more or less unbroken upward trajectory since then, you could have bought Rolls-Royce any time in the last five years and now be looking at a decent paper profit. Now, the shares threaten the 500p threshold for the first time. So much for "no one ever makes money out of Rolls-Royce".

I think the brokers and the City have just caught up with the fact that this is a great, well-run business with excellent projects based much more these days on the maintenance of existing aero-engines than on selling new ones. Still, the fact that it has weathered the storms of the past few years and put up a fight against the Americans speaks volumes. To me, and nowadays to some of London's leading brokerages, the shares are still a buy.

Which leads me to a another British hero - Tesco. Last week, the company reiterated its pledge to be as big in non-food retailing as it is in groceries. Hubris? I'm not so sure. It already manages to sell plenty of commoditised DVD players and T-shirts in its stores, so I can't see why flogging them online is going to cause the management any insuperable problems.

What will cause Tesco a headache, perhaps, is the report of the Competition Commission into the supermarkets, which is due to be published on Tuesday. At times like this I look to the share price to tell me what is going on, as somehow the markets always seem to find out what's about to break in a confidential report.

The shares are pretty robust at well over 400p, quite high historically and, though I could be wrong, not suggestive of anything radical from the commission's review. Besides, Tesco is also chasing growth overseas, where the Competition Commission's writ doesn't run, so either way I think shareholders should be OK.

(By the way, I also happen to think that Tesco shows how retailing can be a hi-tech business as well: it cannot be easy to run an organisation or an online operation that big).

Finally, another sigh of relief as the rise and rise of Rightmove, the property website, continues. Since I bought shares at the end of November they have risen by a half, mostly on their own excellent trading performance. I cannot believe that such a run can continue, but every time I glance at the shares they have progressed still further. It's like the dot.com boom all over again, only smaller. Well, I hope not.

s.ogrady@independent.co.uk

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