The Week in Review: Not much to Yell about in this very competitive market

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The Independent Online

Shares in Yell, the owner of Yellow Pages, have performed well since the company's float 18 months ago. While some observers, including this column, have urged investors to steer clear, the shares have gone from 285p at float to £4.

Shares in Yell, the owner of Yellow Pages, have performed well since the company's float 18 months ago. While some observers, including this column, have urged investors to steer clear, the shares have gone from 285p at float to £4.

At its half-year results this week, Yell surprised everyone by announcing a 40 per cent rise in its dividend, which should mean a yield of 3.4 per cent on the current share price. So, is this company that rarest of beasts, an income-generating growth stock?

It produces plenty of cash to pay dividends with enough left over to fund an acquisition programme in the US that will underpin the growth that management is anticipating. There is execution risk in any acquisition-led growth plan, although so far management has avoided any cock-ups.

Revenue in the UK directories business is capped by an official pricing formula, so growth is slow and is still small as a proportion of the group.

As for the US, the market is intensely competitive, the company admits. Growth rates there could diminish. The incumbent US telecoms companies are fighting Yell all the way while rival independents, albeit smaller than Yell, are also battling for market share.

We continue to feel this is not one for the long-term investor. Avoid.

Peacock Group

Peacock Group - the discount retailer which owns the bonmarché, Peacocks and Fragrance Shop chains - reckons a combination of opening new stores and jazzing up old ones will keep sales flying. It aims to set up another 53 stores. That, plus management's determination to offer something different from the basics sold by the supermarkets, should ensure the group hits optimistic forecasts of earnings growth over the next three years. We have long advised buying the shares, and see no reason to stop.


FKI has identified five key businesses in its portfolio of 23 - high-tech ropes, lifting products, turbo generators (within Energy Technology), materials handling (conveyor belts etc) with its Logistex arm, and window hardware (locks, handles etc). All the rest could potentially to be sold off. Of the key five, the group believes that two have growth potential, turbo generators - as a result of ever rising demand for power equipment - and the materials handling venture - demand from airports, postal sorting operations etc is on the increase. FKI is worth holding.

Carr's Milling Industries

Whether you need Wellington boots, pig feed or a combine harvester, Carr's Milling Industries is a one-stop-shop for all your farming supplies. During the foot and mouth outbreak in 2001, Carr's business was all but wiped out and the shares have had a strong run recently as trading has recovered. Concerns about the cyclical and low margin agricultural sector will suppress the shares from here. Avoid.


Vectura has developed two new kinds of inhaler and a clever means of turning long-established drugs into powder for use in these inhalers. It is testing two potentially exciting new products on humans: one to help impotent men, another to treat chronic lung problems. The latter product sounds less sexy but in fact offers the bigger market opportunity. Vectura is already talking to bigger drug companies about licensing it, bringing in big bucks for the little company. Vectura is risky, but not impossibly so. It uses only established drugs and has a modest revenue stream from consultancy work. Have a flutter.


The media services company VTR took a well-calculated gamble when it embarked on a major reorganisation of the group, combining its post-production and other businesses into a single operation to save money. Dividends could well be resumed next year. VTR has also won a major grant from the European Union to develop its eTitle subtitling software, which could turn out to be a real winner with sales feeding through from 2006. Buy.

Big Yellow

Big Yellow is erecting self-storage warehouses across the South-east where people can house their junk temporarily or if they have accumulated too much stuff. The average customer keeps things in storage for just three months and up to half the business comes from people moving house, so stagnation in the housing market could be a severe blow. With the shares now in the real estate sector (where the fact they trade so close to the net asset value of 175p might hold them back), and having doubled since we said buy at the start of 2003, it is time to lock in profits.


Invensys, the engineering conglomerate, has not yet cast off the fear that another rescue fundraising will be needed. To be certain of avoiding that, Rick Haythornthwaite, the chief executive, needs to deliver his promised "improving year-on-year trend", and then some. He is desperate to move on, but needs to make sure he leaves some unequivocal green shoots behind to safeguard his (still good) reputation. That focus in itself justifies hanging on to the stock if you have it. For the rest of us, Invensys shares are gambling chips, little more.

Itis Holdings

There was a nasty spat earlier this year between Itis Holdings, which broadcasts traffic jam information to in-car navigation systems, and Trafficmaster, which has a rival means of collecting similar data. Itis's main advantage has been that it transmits information via the radio spectrum (a sliver next to - and owned by Classic FM - since you ask) to devices that can be fitted in many major makes of cars. But Trafficmaster is now moving into radio transmission, so a horrible new competitive threat has emerged for Itis, whose cash reserves are just £5.5m. Itis looks set to be a jam tomorrow stock for many years.

London Stock Exchange

The London Stock Exchange, is still the largest exchange in Europe. But capital markets are consolidating, and LSE cannot stand by as its competitors become larger, more efficient and more innovative. It is already less profitable than its two main European competitors, Deutsche Bourse and Euronext. It is a prime takeover candidate. The shares therefore look far too expensive to buy, but existing holders should await developments.

Santander feels Spain's heat

Santander shares will be in the post next week to Abbey's army of 1.7 million shareholders. Those who had fewer than 2,000 Abbey shares will be able to sell their Santander holdings through Abbey branches without foreign exchange charges. And then, early next year, Santander will list in the UK, meaning its shares will trade easily and in sterling. Despite the nationalistic coverage of the takeover, shareholders need make a decision only on financial grounds.

Santander thinks it has identified the root cause of Abbey's woes over the past few years: a terrible IT system. There is a lot in its thesis (the information Abbey holds on its customers is scattered across the organisation, squandering marketing opportunities) but it is most likely overblown. The shock of a takeover will make it much easier to shake up ineffective working practices and improve efficiency, but while a radical overhaul is now possible it is fraught with danger.

Santander has successfully integrated a string of Latin American banks, and the region has stabilised after the currency crises of earlier this decade, suggesting strong lending growth is possible over the long term in countries such as Mexico and Brazil. Santander is a more appealing investment prospect than Abbey because of this growth potential. There are corporate governance issues and it is heavily exposed to the mortgage market in Spain, where worries about an over-heated housing market are similar to the UK. Sell.

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