The Week In Review: Outlook is sweet for food company with rock-solid prospects

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The Independent Online

Peter Jackson loves all the brands and all the companies inside Associated British Foods. His most significant acquisitions while chief executive have included Twinings, which has been expanding its range of teas, and Ovaltine, which has become a popular drink in Asia and is on the verge of cracking China. And Primark was the star performer in this week's interims. The discount retailer increased profits to £50m from £42m last time.

That's right, a chain of clothing shops coexists with grocery products including Kingsmill bread, and with more basic food ingredients such as sugar and flavourings. Making it even more unfashionable, the company has been sitting on more than £1bn in cash while it searches for substantial further acquisitions. Mr Jackson says he won't be rushed, and for the most part investors are ready to trust his judgment. There are still rumours of a share buyback, though.

What could rock this rock solid business? Not much. The EU is going to liberalise the sugar market, reducing the subsidies that have propped up prices and benefited AB Foods for so long. Yet this liberalisation may be less dramatic than many lobbyists hope. The shares, approaching record highs, are still worth buying.

BIG FOOD GROUP

Bill Grimsey, the chief executive of Big Food Group, isn't the only person to have spotted that the cash-rich, time-poor people of Britain are spending more in their neighbourhood shops. He is busy turning BFG's Iceland frozen food outlets into convenience stores. But he is in the esteemed company of the bosses of all the major supermarket chains, who are aggressively expanding into the same territory.

His plans to speed the pace of refits (which so far cover just a fifth of the Iceland estate) are the only serious response to the threat, but it is a costly exercise and BFG's £250m debts make it risky, too. The shares are too highly rated to withstand the gathering threats. Sell.

PETER HAMBRO MINIING

It is a mug's game trying to call the likely direction of the gold price. What is certain is that a further step up in production at Peter Hambro's main Russian goldmine will occur in 2004. Beyond that there is great excitement over a second set of deposits which the company's broker reckons is worth almost as much as the current share price. Even allowing for hiccups in commercialising that site, the share price looks undervalued still. Buy.

SAGE

Sage is about as unexciting as the tech sector gets. This global company supplies a broad suite of accounting and management software products to some 3.6 million small and medium-sized businesses. Sales have held up well in comparison to many companies in this sector with less obviously useful software. In the US, though, recent sales growth has been nil, or worse.

Sage is a solid company with a laudible strategy of pushing additional or next-generation products to its existing customers, as well as hunting for new business and bolstering the group through the odd acquisition. Growth prospects are good, but not stella. The share price valuation is full, the dividend unexciting. Hold.

CAPITAL & REGIONAL

Capital & Regional is an unusual beast: it described itself as a "co-investing asset manager" in the property sector. The company teams up with institutional investors to form joint funds for investment. This gives Capital & Regional much greater firepower than would be available on its own. It also provides the management to run the real estate, collecting fees for its service.

In 2003, Capital & Regional provided a 33 per cent uplift in net asset value, making it the best performer, on this measure, in the sector. That asset value should rise by £1-per-share this year, so there is plenty of room for a further rise in the shares. Buy.

ST IVES

St Ives, the printing group, continues to suffer from "extremely challenging" trading conditions. Unlike your common printer, St Ives specialises in high quality time-sensitive work, requiring top facilities. Its customers are giant companies but it has been hit by the economic downturn. For instance, it said that in the UK and Europe corporate finance market (merger documents etc) "pricing has reached unsustainable levels" - unsustainably low, that is.

St Ives operates in six markets - books, direct response, financial, general commercial printing, magazines and multimedia - and only demand for books is not weak. The share price is too high, given the poor prospects. Avoid.

URBIUM

One of the leisure sector companies to have burnt brightest this past year is the Tiger Tiger bars owner Urbium, whose shares are up 45 per cent since we tipped them in July. The group paused expansion plans last year as trading at its particular kind of high street bar-cum-club had a tough time, but it has its foot back on the accelerator.

Further expansion is affordable, especially now prices of venues have eased. The leisure market is fickle, of course, but Urbium's venues - seven Tiger Tigers excepted - are mainly unbranded so it is more flexible than some. Recovering confidence in the City, where it has several new venues, should also boost trading. Urbium shares are still undervalued.

NETELLER

NETeller is not to be confused with a hazelnut spread. It is not, either, to be confused with a loss-making dot.com of any sort. The company is an e-wallet, a place for gamblers to stash their cash ahead of wagering it on any of the internet's proliferation of gaming sites. It is also hugely profitable.

The company takes over the risky and expensive business of verifying users' identities and checking for credit card fraud - so the gambling sites are happy to accept cash from NETeller accounts, and pay a percentage fee to do so. The shares are cheap for a company which is growing exponentially in a market which is also growing at a rate. One for gamblers to buy.

The above are a selection of recommendations from the daily Investment Column

BP opens the gap on Shell

The valuation gap between the haves and the have-not of the FTSE 100 oil and gas sector has never been wider.

The haves - BP, the UK's largest company, and BG Group, the exploration and production rump of the old British Gas - are raking in cash and pumping up output. The have-not, luckless Shell, is struggling to cope with the debacle of its overstated reserves.

It has had to remove 3.9 billion barrels of its stated reserves, causing a legal and regulatory firefight and bringing opprobrium on the company's complicated management structure. But the fall guys have fallen and some, albeit limited, boardroom reforms have been set in motion. Sentiment at least should improve. On the financial side, though, we are left with a business which will struggle to grow production in the coming years.

Contrast that with forthcoming production increases at BP of more than 7 per cent a year (in part thanks to its risk-taking in Russia) and a promise of 16 per cent for two more years at BG. It is difficult to quibble with the three companies' respective share prices.

With fuel prices, and oil in particular, likely to stay high for the next few years amid improving economic growth, instability in the Middle East and tightish controls by the Opec cartel, it is BP - the most exposed to the oil price - which is pick of the trio. Its shares will yield 3 per cent this year and it has promised further dividend increases. BG Group, expanding in Egypt and Kazakhstan, is the potential takeover candidate and the growth story of the three, but its shares, which hit a new high this week, are vulnerable to any trading hiccups and are only a hold. Shell, too, is worth holding for recovery.

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