The Week in Review: Iceland feels the chill after a bumpy festive season
Saturday 12 January 2002
Most fans of the stock think it can squeeze double this year's profits out of the frozen food retailing business when the new management's programme of refits and product range changes kick in.
There is much faith built into the Iceland share price. Most fans of the stock think it can squeeze double this year's profits out of the frozen food retailing business when the new management's programme of refits and product range changes kick in. If that happens, this week's Christmas trading update should have provided signs that the sales decline has at least been halted. It didn't, and with the prospect of a rights issue hanging over the stock, it's a sell.
Pace Micro Technology
The cash-strapped UK cable firms have stopped subsidising set-top boxes, so times are tougher for Pace, the company that makes them. The box prices are being squeezed and Pace's attempt to crack the US market is behind schedule. But the share price gives no credit for the potential uplift from the launch of Pace's cheap set-top boxes for free-to-air digital channels. It also gives no credit for growth of products with whizzy new features such as personal video recording. Long-term buy.
Greggs, Britain's biggest retail bakers, is a low-profile company that quietly keeps on delivering the goods. Its target is to increase sales to £1bn by 2010 (they stood at £300m last year) and to build store numbers from 1,140 now to 1,700 by 2008. This will include an expansion of the 240 Bakers Oven units, which offer seated catering for a tea and bun. The shares are not expensive for a quality performer and Greggs remains a good share to lock away in the pantry.
Bespak makes the plastic bits and bobs that go into inhalers and other medical devices, and profits are on a slide as its big pharma customers drive down prices. To compensate, it is building a portfolio of technologies for the formulation of drugs to be delivered by nasal sprays, and is working on an insulin inhaler for diabetics. Management talks a good story, but Bespak remains a real gambler's stock.
Photo-Me International, the photo-booth maker and operator, has a dreadful record for disappointing investors and there was more woe this week. The UK business is threatened by Snap Digital, a venture capital-backed company which is undercutting Photo-Me and has snatched the valuable post office contract. The US market has been hit by lower sales at airports after 11 September. Now is not the time to buy.
It has always been a case of mañana, mañana at SkyePharma. The biotech firm has an interesting array of drug delivery technologies, but has never seemed able to covert them into profits. Until now. It has passed break-even and is ensuring a healthier proportion of revenues are from recurring product royalties, rather than one-off development fees. There is plenty of scope for disappointments, and investors should be ready to bank any profits early, but the shares are worth the risk.
Jarvis has transformed itself from a mucky old-style construction group to a sexy, support-services player, and that paid off. It operates in rail maintenance and private finance initiatives. The shares had a strong run this year and trade on a forward p/e of 20. Not cheap, but a good long-term bet.
Takings at Chorion's late-night bars were up 4 per cent in December. That's good, because the business, which includes Tiger Tiger and other swanky venues, is being fattened for demerger from the Chorion's intellectual property business, which combines the rights to Miss Marple, Poirot, Maigret and Noddy. A ban on new late-night licences in London's West End allows a respite from competition while Tiger Tiger is rolled out across the UK. The demerger in May should prompt a re-rating. Buy.
Figures this week confirmed that 2001 was a record year for new car sales in the UK so Reg Vardy, the UK's largest dealership, unsurprisingly posted record profits. But this year is not likely to be as buoyant, and prices are also falling for used cars. A European ruling on competition in the industry is due in weeks. The experienced management have a steady hand on the wheel, but investors should take profits.
Waiting for a re-rating of Amec's share price has been like Waiting for Godot. The company has moved decisively away from its low-margin past as a construction firm and increasingly deserves a higher support-services rating, but there has been none. Maybe it'll be lucky this year. An economic upturn could help, as could plans to purchase the remaining 54 per cent of Spie, its French networks business. Buy.
The largest hotel chain in Ireland, Jurys Doyle weathered the foot-and-mouth crisis, the US downturn and 11 September with only a 10 per cent decline in earnings. In Jurys Inn, the group has an innovative no-frills concept that keeps rates reasonable for high-quality rooms in downtown areas by not offering room service.
Northgate, which owns 38,000 commercial vehicles for hire to businesses that don't want the hassle or the inflexibility of running their own company fleet, is half-way through a five-year plan to double its size. Any downturn from existing customers could be more than compensated by new business from cost-conscious firms driven to outsource vehicle needs. The share is one to tuck away.
The above is a selection of recommendations from this week's daily investment columns
Investors in the no-frills public house juggernaut that is JD Wetherspoon have been amply rewarded in the past six months. The shares have rocketed by nearly a third, but the rally halted when the stock market took this week's Christmas and New Year's trading statement negatively. Tim Martin, the chairman, disappointed his fans by revealing like-for-like sales in the six weeks to 6 January had increased only 3.7 per cent, compared to 9.4 per cent the previous year. This ran counter to the image of a boozy festive period as depicted by rivals at SFI and Chorion. The 5.4 per cent like-for-like sales gain for the 23 weeks to 6 January showed the group is on a slowing trend.
Wetherspoon, famed for its no-music, no-TV, no-nonsense venues and cheap booze, is expected to face challenges as Luminar, Yates and Six Continents elbow into its niche. Although the Wetherspoon management is feted for its ability to deliver, analysts believe Mr Martin could face hurdles in tripling his estate from 500 units to more than 1,500 in 10 years, given the smaller population centres he must use. A repeat of the dip in sales that marked the 1998 World Cup could also cause problems this summer as beer-swillers opt for TV-friendly boozers. Peel Hunt expects earnings growth to fall from 22 per cent to 16 per cent in 2002.
The early successes of Wetherspoon's youth-oriented Lloyd No 1 sites, picked up 18 months ago from Wolverhampton and Dudley, provide medium-term potential, but the scale of Lloyd is small compared to the rest of the estate. The shares have defensive qualities in uncertain economic times, but these are already factored into the price. The stock trades at a premium to the sector that is no longer fully justified. Sell.
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