Investment Column: Steer clear of the Big Food Group

PD Ports bonds are safer harbour than its shares; BetonSports float looks worth a punt at 140p

If only mum would go back to Iceland. The frozen food chain, owned by Big Food Group, has been suffering as customers desert its frumpy old stores. While the management has been focused on turning some of its best sites into bright new convenience stores selling fresh fruit, veg and sandwiches, the older shops - on the evidence of yesterday's trading update - are fast going to rack and ruin.

If only mum would go back to Iceland. The frozen food chain, owned by Big Food Group, has been suffering as customers desert its frumpy old stores. While the management has been focused on turning some of its best sites into bright new convenience stores selling fresh fruit, veg and sandwiches, the older shops - on the evidence of yesterday's trading update - are fast going to rack and ruin.

The company has two answers: speed up the programme of refits; and replace the Iceland boss with a new man poached from Asda, with a brief to improve customer service standards across the 748 stores, not just the 40 refitted ones.

The company has two problems: it does not generate so much cash that speeding up the refits will be a financial breeze; and bigger competitors such as Tesco are steaming into the convenience market much faster than Iceland is managing. With Iceland sales down 1.7 per cent in the past three months, compared with the same period last year, the combative chief executive of BFG is going to struggle to turn the sales performance around any time soon.

And that is just Iceland. While the City's gaze has been fixed in horror there, the other main business - the cash and carry chain Booker - is starting to look troubled, too. Sales (excluding tobacco) are down 1.8 per cent, despite a push to link up with independent convenience stores, helping them rebrand as Premier shops and becoming their exclusive wholesaler. Booker's sales to caterers have been particularly poor and the company yesterday added Euro 2004 to the list of reasons, or excuses, which previously included the weather and the late Easter.

The Woodward food service business is growing fast, but it is still only a tiny part of BFG, and there will be no respite for the shares at least until sales growth is restored at Iceland. They have plunged since we said "sell" at 135p in April and now look cheap as a multiple of likely earnings this year. But earnings forecasts were cut again yesterday, and the dividend yield of 3.8 per cent doesn't suggest the stock is noticeably undervalued. Avoid.

PD Ports bonds are safer harbour than its shares

Powell Duffryn, the North of England ports group which steamed away from the stock market four years ago, yesterday returned to harbour, after a £175m flotation. PD Ports, as it is now known, has been sold by its Japanese owner in an "accelerated IPO" organised by the broker Collins Stewart.

PD runs the ports of Tees and Hartlepool, where it is hoping to lure container ships and Scandinavian cruise ships to dock, away from the congested ports of the South.

The second prong of its growth strategy - like that of all good ports operators - is the regeneration of land around the docks. In Hartlepool, PD has planning applications in for 3,400 new homes. The multi-stage Victoria Harbour Project could involve building the first 1,000 homes within the next few years, but PD still has to sort out financing and partnership deals, which could get harder as the housing market begins to turn.

The shares ought to be priced at a big discount to stock market stalwarts such as Forth Ports to reflect the earlier stage of the expansion strategy. Investors will be nervous, too, about fears of faltering economic growth. PD's convertible bonds, which yield a 6p coupon and began trading at 115p, look more attractive than the riskier 100p shares yielding 4 per cent.

BetonSports float looks worth a punt at 140p

BetonSports(BoS) allows its customers to, er, bet on sports. The online gaming and gambling site, based offshore in the Caribbean, took $1.2bn of sports bets last year, making it already one of the US's largest such sites.

It floats next week on the Alternative Investment Market at 140p per share and said yesterday that it has raised £54.6m to fund expansion in Latin American and the Philippines. For the moment, the company is happy to leave the UK to the established brands of William Hill and Ladbrokes. In the US, bookies are illegal in many states, and offshore, online sites are the only way to reach punters nation-wide. Online sports betting is growing at 20 per cent a year. BoS is about to launch a poker site where users can play against each other, paying a fee for the privilege.

Investors ought to keep an eye on the regulatory situation in the US, where there is the chance that a clampdown on offshore sites could damage BoS's growth trajectory. But, at 140p, BoS shares will start trading at just seven times forecast earnings for the year to January 2005. This compares to 12 times for Sportingbet, its closest competitor. BoS has no debt and promises a dividend yield of over 4 per cent. Buy.