Abtrust emerges as a new force

The Investment Column

Abtrust Emerging Economies has proved a disappointment since it floated at 100p in November 1993. With a heavy weighting towards Latin America, the investment trust was unlucky in being hit by the Mexican peso crisis just a year after launch. In September 1994, on the eve of Mexico's financial melt-down, the largest part of the fund was in that country. That did not help net assets per share, which had slumped from 101.8p to 82.9p in the year to last September.

But yesterday's half-way figures show that the trust is mounting a strong comeback. Net assets have surged 13 per cent to 93.6p in the six months to March, easily outperforming the International Finance Corporation composite index of emerging markets, which was up less than 10 per cent in sterling terms over the same period.

That performance has helped the fund overtake its peers among general emerging market funds. The average growth for the seven trusts monitored by the Association of Investment Trusts is 9 per cent over six months and 18 per cent over 12. Abtrust, by contrast, has notched up an impressive 26 per cent advance since March of 1995.

The fund's outperformance has been helped by a definite move away from Latin America, where it is under-represented compared with rivals by around 5 percentage points. Whether by accident or design, Abtrust's decision to place its bets on Asia has paid off. With 63 per cent of assets in that region in March, it has cashed in handsomely on the sharp rebound in Far Eastern stock markets.

Despite signs of a rebound in sentiment towards Latin America, Abtrust is recycling those Asian profits into Europe, the Middle East and Africa. It plans to drive up the proportion of assets in these regions to 15- 20 per cent.

But, although the fundamentals are improving around the world, a more worrying aspect of the recent revival in emerging markets is the support provided by the money flowing out of the developed markets in the US and Europe into other parts of the world. If that prop is genuinely structural, seeking the superior long-term returns expected from the old Third World, then it is good news. If those funds take flight at the first hint of the next Mexican crisis, the ride for shareholders in emerging markets could be no smoother in the future than it has been in the past.

In that event, investors will be better off in a general fund like Abtrust, even though the discount to net asset value has narrowed to 2 per cent, with the shares up 0.5p at 91.5p yesterday. Add in the value of the warrants and Abtrust is less than 1p away from the original offer value. But investors seeking safety in these turbulent markets might prefer a bigger and more liquid fund such as Templeton Emerging.

ODI needs more focus

The information era being formed as the computing, media and telecommunication worlds converge offers investors unlimited opportunities. The problem is that nobody knows what this new age will look like or how the technology will work, let alone who the winners will be. Some may not even be born yet.

For tiddlers like loss-making electronic publisher On Demand Information to succeed they need to focus their expertise on niche markets by selling either distribution (hardware) technology or information (software) content.

Rather confusingly, Leeds-based ODI claims to be doing both. Its big idea is to revive the concept of the paperless office by developing constantly up-dated, on-line directories and brochures for Internet pages that save its corporate clients valuable storage space and retrieval time.

Examples include the world's first system simultaneously to transmit images and speech over the World Wide Web - the fastest-growing part of the Internet - and a recent, four-year distribution deal giving BT the right to sell ODI's multimedia products aimed at the personnel and construction markets.

ODI is also looking to exploit opportunities to build and update encrypted company Web pages. Although Web page production is very much a cottage industry, multimedia consultants Durlacher estimate that the UK's top 40,000 companies will be linked to the Web by the year 2000, spending up to pounds 70,000 a year maintaining information on their own site.

To tap into this potential pounds 2.5bn market, ODI wants to hire another 60 staff on top of the 240 it already employs.

That, and the prospect of maiden profits by the end of this calendar year, ought to be a good reason to subscribe to yesterday's two-for-25 rights issue at 180p to raise pounds 7m. It is, after all, the first cash call since the shares were floated at 78p in December 1993 and should see ODI through the next two crucial years.

But ODI persists in being all thing to all people. It has four divisions involved in everything from interactive television, CD-Roms for training programmes and healthcare videos. Until there is more evidence of focus, decline the rights.

Pet City has further to go

Pet City's first results since joining the Alternative Investment Market at the end of last year were pretty much in line with expectations at the time of the flotation.

Operating profits before store opening costs of pounds 78,000 were up a fraction on last year's first half after a 48 per cent rise in sales to pounds 25.9m.

After a slight slow-down in the rate of openings, the loss before tax for the six months to January was pounds 293,000, down from pounds 694,000. More importantly, the company said its planned expansion to 75 sites by the end of July 1997, from the 39 trading currently, was on track, despite having fallen behind original expectations.

The Pet City concept is intriguing, a chain of out-of-town pet superstores that the company boasts are "more like going to the zoo than just shopping". And the fledgling group has ambitious plans - a network of 300 stores is planned by the year 2003.

That has already been reflected in the share price, which has risen more than a third from the 300p placing price, after a sparkling debut when they jumped to a first-day premium of 55p. After another 20p rise, they closed yesterday at 415p.

On the basis of illustrative projections, the company, which is aiming for the sort of category dominance enjoyed by businesses such as B&Q and Toys R Us, could be making sales of over pounds 200m and profits of about pounds 9m by the year to July 1999.

Assuming a full tax charge on that profit, the resultant earnings per share of about 25p would put the shares on a prospective price/earnings ratio of about 16 three years out.

That seems a pretty steep price to pay for a company that is yet to prove that its range, price advantage and "shopping experience" is enough to tempt shoppers out of the supermarkets, Pet City's largest competitor. In the meantime the shares are high enough.

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