The Investment Column: At these levels, it is worth staying on board GKN

Patientline; La Tasca
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The Independent Online

Our view: Hold

Share price: 282.5p (-0.75p)

If it were not for the booming aerospace sector, GKN would be in a bad way. Yesterday's trading statement from the engineering group underlined this. It assured the City that this year's profits would meet expectations because strong aerospace demand had offset higher raw material and energy costs and difficult conditions in the automotive sector.

GKN makes niche components for airframes and plane engines. This accounts for around 20 per cent of its sales. The rest comes from the automotive industry, where the group is a market leader in constant velocity joints, which ensure that car wheels corner without collapsing, and from powder metallurgy ­ a way to make lightweight metal components.

Yesterday it said that market conditions in the second half of its financial year had softened as cuts in US auto production combined with lower demand in parts of western Europe to reduce overall volumes. Meanwhile, raw material and energy costs were slightly higher than expected due to soaring steel, copper and nickel prices. Despite these conditions, analysts expect the group to register a pre-tax profit of around £212m for the year to 31 December.

GKN shares have lost over 10 per cent of their value during the past few weeks because of fears that yesterday's update might contain a profit warning. This leaves the stock trading at just 11 times forward earnings ­ a discount to both the wider UK stock market and peer Tomkins ­ and makes it worth holding on to.

Patientline

Our view: Avoid

Share price: 5.63p (+0.03p)

The losses continue to pile up at Patientline, the provider of telephone and internet services to hospital beds. Yesterday's first results showed a widening of pre-tax losses at the group to £9.1m, from £5.4m for the same period in 2005. This figure includes a £1.6m exceptional charge arising from the closure of the company's underperforming US operations, but even stripping that out things look dire for Patientline.

Over the past six years the company has lost nearly £60m, despite achieving a fourfold increase in revenues. This explains why it carries an £85m debt burden against a market capitalisation of just £5m.

Ward closures, empty beds and patients' unwillingness to use its terminals because of bad publicity over the cost of calls are to blame for the widening losses that Patientline unveiled yesterday. The revenue the group generated per terminal per day in the first half fell 4.7 per cent to £1.62.

Given the state of the business, few were surprised to see the chairman, Derek Lewis, ousted by shareholders earlier this year. But the group's new boss, Geoff White, faces an uphill struggle. The biggest and most immediate problem he has to deal with is the conclusion of talks with the Department of Health aimed at reducing the prices of incoming calls to bedside phones. Negotiations between Patientline and the department have been ongoing since January and show no sign of coming to an end.

The result of these talks will decide the company's future. For now, Patientline has the support of its banks, although, as everything in this world, that comes at a price. They will receive a fee equivalent to 10 per cent of the group's market value, payable in cash or in shares, and can pull the plug on the company should the negotiations with the health department end badly. Patientline shares should come with a health warning. Avoid them.

La Tasca

Our view: Hold

Share price: 145p (-2.5p)

The Spanish restaurant chain La Tasca has performed well in a robust market, benefiting from the eating-out boom sweeping the country. The group has rapidly expanded and operates from a chain of 70 restaurants, including 56 La Tasca tapas bars and seven more upmarket La Vina restaurants. This year the company moved into the smokehouse, bar and grill territory, with three Sam & Maxie's, in Stevenage, Milton Keynes and the Trafford Centre in Manchester.

However, things took a downturn over the summer, and La Tasca has issued two profit warnings in five months. Management has blamed the World Cup hangover for eating into its profits, and has also pointed to the costs incurred in opening new outlets during the period. This led to a flat pre-tax profit of £2.2m for the six months to 29 October, below City forecasts of £3m. Turnover jumped 20 per cent to £32.2m. Brokers are downgrading their full-year forecasts and questioning the management's strategy of developing new formats and opening on both sides of the Atlantic ­ but it may not quite be time to ditch the shares. With current trading showing signs of improvement and the all-important Christmas period just beginning, we recommend staying put. La Tasca is an obvious target for private equity and should prove a good long-term bet.

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