The Week In Review: Clearer outlook for Pilkington with move into emerging markets

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The Independent Online

We have been stuck in stage two of Pilkington's three-stage recovery programme for perhaps a little longer than Stuart Chambers, chief executive, had hoped. But at least things are looking clearer for the world's second-biggest glassmaker.

During stage one, Mr Chambers slashed costs, reducing the payroll from 39,000 in the mid-1990s to 24,000 now. In stage two he brought net debt down by a third. The next stage will see a resumption of investment to grow the business, with new plant openings in emerging markets such as Russia and China and possibly acquisitions.

There are now signs of demand finally picking up. Construction markets in Europe are sluggish but glass prices are stabilising - though prices are not expected to rise in the next 18 months or so. The picture at Pilkington's car windscreen business in North America is slightly gloomier, with sales and prices falling, but even there profits are up - thanks to cost cuts.

Some risks remain, given the uncertain outlook for glass prices. Higher energy costs - 7 per cent of total costs - are also an issue for Pilkington, but it is trying to pass these costs on to customers.

The full-year dividend of 5p, which has been paid out for the last nine years, seems secure, giving a yield of 6 per cent. Buy for recovery.


Asia Energy owns a mining project in Bangladesh which, it has turned out, has 430 millions of good quality coal under the ground. The shares, placed at 75p in April, have shot to 365p. The trigger was an independent consultant's report which valued the project at an extraordinary $2.3bn (£1.2bn). There are of course caveats. A full feasibility study could turn up some gremlins suggesting the coal is unusually tough to get out the ground. But Asia Energy's heavyweight advisers should help a respected management steer round these obstacles. Buy.


McBride is the manufacturer behind supermarket own label products such as Asda toothpaste, Tesco washing powder or Sainsbury's bleach. These products are the shock troops of the supermarket price wars, and McBride must be content to supply them at very low cost to the mighty grocers. So the company is constantly seeking savings from manufacturing rejigs and squeezing its own suppliers. The growth potential is on the Continent, where supermarket own-label is only in its infancy as a market. Fairly priced.


The 70-year-old retailer is the country's biggest specialist camera chain. It has 263 stores, 70 more than it had when it first tried to float four years ago. It is possible that like HMV, another specialist retailer, Jessops will one day command a premium rating. Shoppers are snapping up digital cameras but just because four-fifths of the population own a traditional camera, it doesn't follow that the take-up for digital photography will be anything like that high. The cut price shares look about right until Jessops has had time to prove itself.


The £150m acquisition of Rebus by Northgate Information Solutions last December transformed the company into the UK's biggest supplier of payroll software to personnel departments. It also has strong businesses supplying the police and local authorities, where the need for inter-departmental sharing of database information is prompting IT upgrades. Growth prospects are strong and poorly reflected in the share price.


Only 50 per cent of Sanctuary's business is music publishing. The rest is artist management, and Mary J Blige and Nelly have recently signed up, joining artists diverse as Beyoncé and the Manic Street Preachers. Record labels have to pay advances to bands that may subsequently flop, but as a manager, Sanctuary takes a lucrative 15 to 20 per cent of the artists' revenues with little capital outlay. Add the shares to your collection.


Penna Consulting is a recruitment company which does better when corporate Britain is firing rather than hiring. This is because its main operations, accounting for around half the business, are in "outplacement", where companies pay for retraining and jobhunting advice for staff they are making redundant. The short term view is cloudy, but bold, long-term investors might want to focus on Penna's strong reputation. Speculators might focus on the presence on the share register of a former chief executive whose plans are unclear. Have a punt.


3i, Europe's largest listed private equity group, has the advantages of its large resources and network of contacts. The company invests in start-up businesses and buyouts of established companies. With business confidence robust, there are more opportunities to cash in existing investments. Buy.


Ageing populations in the western world means more joint replacements, and increasing longevity means many people having to have replacements of replacements. As an area of business to invest in for the long-term, orthopaedics is tough to beat. Shares in Smith & Nephew, the artificial hips and knees maker, look expensive but similar US companies attract higher prices. Long-term buy.


Synergy Healthcare does the laundry for the National Health Service. The other side of the group - sterilising surgical instruments - has traditionally been seen as more exciting, but growth prospects for the laundry side are impressive. Nurses uniforms could prove an area of expansion and there are other innovations it is importing from its Dutch acquisition. Buy

Matalan pins hopes on £85m

For a cheap and cheerful retailer, Matalan has been decidedly pricey and miserable of late. The supermarket giants' march into the discount clothing sector stole Matalan's thunder on value, while it rained on its own parade last Christmas, with a profit warning either side of the festive season.

Underlying sales fell last year for the first time in its six-year history as a listed company, prompting bidders to start circling. The days of its stock market stardom, when it regularly reported double-digit sales growth, seemed a distant memory. Yet under a new chief executive, John King, the group seems to have at least found its feet again.

All three divisions - womenswear, menswear and homewares - are growing again. A successful new distribution centre means stock availability has improved and the first refurbishment programme since its first store opened nearly 20 years ago is underway. Interim profits were flat, knocked by a poor performance from Lee Cooper, but hopefully this business will soon be sold.

The next six weeks will determine whether the company hits the market's forecast of £85m pre-tax profits for the full financial year. Matalan has managed to cut prices by about 5 per cent across the board over the past six months, so shoppers should actually find Christmas bargains. Mr King hopes to avoid last January's self-induced profit meltdown by having sales to clear stock as he goes.

But simply boosting turnover by cutting prices doesn't necessarily do much for the bottom line. Profit progress will only come if margins recover and the group weans shoppers away from its cheapest products. Matalan has yet to definitively prove that it can sustain a recovery amid fierce competition for the value-clothing pound.

The group was one of our retail picks of the year in January and the shares have risen strongly. But with so much riding on Christmas, it would be wise to take profits.

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