The Week In Review: Are BA's days of high flying numbered?

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The Independent Online

This week's new passenger figures were strong, particularly for business and first class, but is as good as it gets?

The City says no. But one analyst - Andrew Lobbenberg of ABN Amro - takes a different view.

Unsurprisingly, his thesis is grounded in the rising price of fuel. BA has been slapping a fuel surcharge on customers, but these have not compensated fully for its own rising fuel bills.

If the oil price flattens out, the airline won't be able to justify further surcharges, but its own bills will continue to rise as the supplies fixed at earlier, lower prices fall away.

Growth rates now look as good as they are going to get, but fuel shocks and internal disruption lie in wait. Sell.


Chesnara has more than enough money to service the life policies of its existing customers - leaving the excess to be spent on acquisitions or dividends. And boy, what a dividend. When we tipped the stock at 119.75p in March, it had a yield of 10 per cent. Despite the 40 per cent rise in the shares since, the yield is still more than 7 per cent.

Although there remain uncertainties, there are savings to be pocketed by integrating the acquired City of Westminster Assurance, and there are likely to be more lucrative acquisitions on the horizon. Hold.


Malcolm Glazer's takeover of Man United leaves Tottenham Hotspur as the leading quoted football business.

On the pitch, the club is up to a heady third place in the Premiership although it is out of the Carling Cup, so one source of revenue this season has already gone. It's early days this season but the team look capable of finishing in a European spot, which could mean financial success this time next year.

For fans wanting a football investment, buy these shares over any other.


Petrofac, the oil and gas company, floated on the London market on Tuesday, kicking off with a £742m price tag. By the end of the day, it was valued at £841m.

That looks steep compared with post-tax profits of £26m last year, but this is a company growing solidly.

Ayman Asfari, the chief executive, pocketed £54m in cash from his share sale in the float, but he still has £193m tied up in the business. There is scope for a private investor able to take the long view here too. Buy.


Few can match James Halstead's dividend record. For the 30th year in a row, the flooring manufacturer raised its payout, having already returned 60p-a-share to investors in January.

It's been managing a creditable performance in the face of growing difficulties. The residential side looks vulnerable, and it is suffering from both rising oil and raw material prices.

While margins look like being squeezed, Halstead's strong cash flows mean its dividend is not vulnerable. The scope for prudent expansion of the product range and geographical reach make it a hold.


Severn Trent ought to be a calming investment. Water companies, being local monopolies, are highly regulated, and highly predictable as a result.

But while the regulated business accounts for about three-quarters of Severn Trent's operations, it has other interests, which have struggled. Its US environmental testing venture, where profits have fallen by a quarter, and its Belgian landfill business have both been disappointing. These businesses have long-term growth potential, and so investors should look through current weakness. With a 5 per cent yield, it is perfect for low-risk investors. Buy.


It could be thanks to Dawson Holdings that you have this newspaper in your hands. The company distributes papers and magazines and, together with John Menzies and WH Smith, accounts for more than 85 per cent of all UK distribution. The current danger is what will come out of the Office of Fair Trading's ongoing review of the market. In all likelihood, magazine distribution will become more competitive, with supermarkets demanding ever-lower prices.

The big three may win business from remaining independents, but overall the new regime does not look positive. With fuel costs rising, only a 5 per cent yield makes Dawson a hold.


With consumers reining in their spending, sales growth at Halfords, the car parts to bikes retailer, is slowing down. But like-for-like increases of 2.6 per cent over the six months to the end of September would make other retailers envious. Most of what Halfords sells are purchases that people buy because they have to. The group's growth strategy has been focused on opening new stores and making more efficient use of its large sites. It now has 402 retail outlets and reckons there is ample room for another 150 in the UK. The business is not immune to a retail slowdown, but its resilience and niche position mean the shares should continue to motor. Hold.


Inspicio, the cash shell, made its first purchase this week buying Inspectorate, a company which checks the concentration of hydrocarbons or contaminants in oil, for £52m. Inspicio sees room for major cost cuts and says recent laboratory investments will also soon start to pay. Buy.

Rock steady growth means investors should hold tight

No one else is doing this - at this speed. So says Bob Bennett, the finance director of Northern Rock, who believes the former building society has pulled off a remarkable feat over the past year. Despite stagnating property prices and a slump in the home loans market, it still managed to increase its mortgage lending by 23 per cent over the first nine months of 2005.

It is stealing a bigger slice of the mortgage market as a result. The bank's proportion of net mortgage lending is at a record 14.2 per cent. The more business it wins, it says, the more profit it can share with customers in the form of better deals: a virtuous circle.

Although this week's trading update contained no nasties, it disappointed some who had looked for the bank to raise its guidance to investors.

While other banks have suffered rising bad debts, Northern Rock reassured investors that arrears remain low. But other concerns have not gone away - important financial ratios such as income margin are still falling and profit growth lags asset growth. We have advocated over the past year that long-standing investors lock in some profit as the risks mount, but trading at about 11.7 times 2005 earnings, it is worth hanging on to some.

The above are recommendations from the daily Investment Column

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