The Week In Review: Time to quit as Gallaher faces smoking bans

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Gallaher, behind the Benson & Hedges, Mayfair and Silk Cut brands, has delivered solid growth for many years. But health campaigns across western Europe are starting to work and the group this week warned that profits for the first half fell 4 per cent to £225m.

Volumes for the group were up 3.5 per cent to 82bn cigarettes, but this was mostly down to markets such as the Commonwealth of Independent States (Ukraine, Russia and Kazakhstan). Here, profits rose 55 per cent.

These are impressive figures, but represent a tiny fraction of the company's business. In the UK, volumes were down 8 per cent, and next year the domestic market is set to become more challenging, when pubs in Scotland ban smoking. By 2008, pubs that serve food in England and Wales will also have to implement bans. Such law is marching across Europe, and Gallaher is suffering "substantial" market declines.

The shares are valued at 14 times 2005 earnings and a yield of less than 4 per cent does not compensate for Gallaher's dependence on shrinking western markets. Follow doctor's orders on Gallaher stock - quit.


Interim results at Beazley show a 42 per cent rise in profits, and the Lloyd's of London insurer says its exposure to Hurricane Katrina is just £20m. The excitement in Beazley, however, lies in its acquisition of Omaha Property & Casualty - the group now has licences to trade in 50 US states. At just under 10 times this year's earnings, Beazley is one of the more expensive Lloyd's insurers. But with a strong management and an attractive dividend, that's justified. Buy.


Aegis is fighting hard for its traditional media-buying business, expanding its market research operation, and developing its internet and mobile phone marketing expertise. But a good operating performance is not always a strong "buy" signal and the shares are pricey compared with rivals. The best hope is a takeover, but a bidder has not yet emerged. Avoid.


Car insurer Admiral has not strayed off course since joining the London market 12 months ago. Its first-half results reveal a 17 per cent profits rise, plus more cashback for shareholders. Since we tipped this stock at flotation, it is up by 40 per cent - given its benevolent dividend policy and strong market position, Admiral still represents good value. Buy.

Premier Foods

Premier Foods is behind some of the choicest British brands - Branston Pickle tard and Ambrosia rice pudding, for instance. To help it achieve an annual sales growth target of 1 to 2 per cent, Premier is now launching offshoots of its brands. On 12 times earnings , put the shares in the larder.

Robert Walters

Unveiling its interim results this week, Robert Walters, the recruitment agency, boasted a better-than-expected 33 per cent rise in profits, spurred by strong growth in Asia and Europe. And while the threat of tougher times in the UK has not evaporated, the group has stripped costs and expanded its client base. A re-rating may be next. Buy.

Travis Perkins

Travis Perkins must prove its recent acquisition of Wickes was not a botched job. The builders' merchants bought the DIY chain in February, just as the market peaked. Sales have been falling ever since. The group attempts to put on a brave face, but its claim that building activity from the Olympics will boost trade from next year on is clutching at straws. Avoid.

Premier Farnell

Sir Peter Gershon, executive chairman of Premier Farnell, the distributor, has a tough job - he's looking for a new chief executive while trying to generate savings for the company. The latest interim figures make grim reading, with flat-lining sales and profits down £3.3m to £34m. However, Premier Farnell is a solid business, which Sir Peter is taking a proactive role in re-shaping. Buy for recovery.


Insurers are counting the costs of Hurricane Katrina and Benfield, a reinsurance broker, will benefit. It acts as an intermediary to place reinsurance cover for insurers, and will be put to work finding new contracts for its clients following the storm. But while there are other reasons to be positive about the future, the shares already look inflated. Seek shelter elsewhere.


Buoyed by a £2m saving in licence fees, SMG, which owns the main ITV franchise in Scotland, has announced a 68 per cent increase in pre-tax profit for the first half. However, while the company will continue to benefit from some uptick in UK advertising this yea, it remains uninspiring. A break-up could come but this is not a reason to rush in. The shares trade at a discount to peers such as ITV and that is deserved. Avoid.

The above recommendations are taken from the daily Investment Column.

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