An each-way bet on Wassall and TLG
Sunday 09 February 1997
In this context, investors might ponder the surprise purchase by Wassall, the diversified industrials company, of 4 per cent of TLG, formerly the lighting division of the now-demerged Thorn-EMI.
The purchase looks, in the view of one analyst, to be an "each way" bet on an undervalued company. If the TLG price rises on bid interest, Wassall can bail out for a profit. Alternatively, it can launch a full bid from a relatively cheaply acquired base. A punt on TLG shares, which have been depressed since a profits warning in September, would be one way of riding coat-tails. The other would be to buy Wassall (349p) in the hope that the exchange rates will not crucify its dollar earnings from General Cable.
TLG (121.5p) seems a better bet, but longer-term investors may prefer Wassall on the basis that the anaemic behaviour of the diversified industrials sector cannot last forever.
CLYDE PETROLEUM (120p), on the other hand, is almost certainly at its 1997 peak, whether the 120p a share bid from Gulf Canada succeeds or not. Anyone outside the big institutions who is still holding should sell in the market, where the buyers will no doubt be the men from Calgary looking to mop up whatever they can get.
PACE MICRO TECHNOLOGY (188.5p) had the enviable reputation of being a hi-tech company that not only made profits (pounds 18.2m for the year ending last May and pounds 10.2m in the first half of this year) but also, and this is sadly rare, beat its own flotation profit forecasts. Its business is also particularly glamorous at the moment. Pace is the market leader in set-top decoders for satellite television, and might be well placed to exploit the predicted flurry of decoder purchases that will accompany the introduction of Digital Terrestrial Television (DTT) and a digital satellite service next year.
But with every silver lining there is a cloud, and when you are a hi- tech stock that cloud can turn into a storm. Pace's warning 10 days ago that it had overestimated some of the demand for its digital set-top boxes sent the shares below the price at which they were issued in June, 1996.
So much for the reputation. But speculators will wonder whether this fall was overdone. With the digital revolution gathering momentum - BSkyB is to award a big contract to a set-top box manufacturer in the next week or so - Pace deserves to be at the risk end of the portfolio.
ANYONE acting on this column's review of banking stocks last July would have done well. HSBC, tipped at 1,049p, has roared ahead to 1,484p, while Lloyds TSB and Barclays have both posted gains of around 30 per cent. Now may be the time to take profits in those stocks and switch into NatWest (816p), which only managed a 3 per cent gain in 1996. Part of this was due to a pounds 557m one-off charge in the first half. In addition, there was uncertainty about the bank's strategy and ability to lower costs in its retail banking network. Those factors may have been overestimated, and the shares are due for an upwards rerating. Buy.
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