The Investment Column: Cable & Wireless is the talk of the town, but the buzz may be premature

Royal & Sun Alliance; Enfis Group
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The Independent Online

Our view: Take profits

Current price: 191.9p

Cable & Wireless is back in vogue. The shares have been climbing steadily since last summer and yesterday's results gave the stock another boost. C&W reported a 20 per cent rise in profits for the year to March, pleasing analysts who had undershot on earnings forecasts. Meanwhile, a 30 per cent dividend hike cheered investors.

The telecoms company also said that its plan to turn around the C&W UK business was running ahead of schedule, providing fuel for those investors banking on an eventual separation of the company's UK and international businesses. C&W has pledged to keep the two distinct businesses together until its UK recovery is complete, as it relies on the cash generated by the company's extensive international operations to invest in overhauling its British network. Management poured cold water on any notion of an impending break-up, arguing that there is much to do to prepare C&W for that eventuality. It also rejected market tittle-tattle that it is likely to be taken over anytime soon.

However, some telecom sector veterans described the good news as being a bit like "Groundhog Day". It is the second time since Richard Lapthorne took over as chairman that analysts and investors have got excited in the early stages of a multi-year recovery plan. The difference this time is that while earnings improvement has again been achieved by slashing costs, C&W looks better placed to grow revenue and realise the potential of the company.

C&W has a lot to prove in executing the next stage of its recovery plan and the potential loss of a key wholesale deal with Pipex - the telecoms and internet company in talks with Tiscali - could prove a big blow for the company. With the stock trading at over 27 times expected earnings for next year, investors should bank their profits.

Royal & Sun Alliance

Our view: Take profits

Current price: 160p

Investors who followed our tip to buy Royal & Sun Alliance at the end of 2005 will have made a tidy profit. Over the last 18 months, the company has finished off its restructuring, sold off its risky US business, and now looks a prime takeover target. During that time, the shares have almost doubled.

Yesterday, the company announced it was buying the remaining 25 per cent that it does not already own in the Scandinavian insurer Codan. Although the shares fell over fears that RSA had paid too high a price and because of its plans to raise £300m on the equity markets to fund the deal, buying the rest of Codan makes good commercial sense. Not only will it give RSA access to a greater share of Codan's profits, but it will also leave the group better placed to sell the business should it want to eventually hive it off.

Although some analysts suggested that the deal was evidence of RSA's intention to stay independent, this is nothing new. Chief executive Andy Haste has never been interested in hawking the company around, but should an approach come, he will no doubt consider it.

After such a strong run, RSA now looks more fully priced, and the stock is unlikely to maintain such a rapid momentum going forward. Nevertheless, the company is in good shape after its recent overhaul. Its More Than retail business continues to exceed expectations, while the commercial arm is still profitable at a difficult stage in the cycle. Existing shareholders who have enjoyed the ride should lock in some profits, but then sit tight.

Enfis Group

Our view: High-risk buy

Current price: 163p

Light-emitting diodes seem to have been around for a long time; anyone buying a digital watch back in the 1980s will remember the excitement that having a light on your watch created.

Investors could be forgiven for thinking that the technology has remained firmly in the Clive Sinclair decade, but the industry's potential remains bright.

Enfis (Welsh for "rainbow" apparently) Group, which listed on Aim in March, is pioneering a new generation of LEDs for use in architectural, retail and commercial applications. With new EU regulations set to phase out filament bulbs within the next four years, the demand for alternatives is set to soar.

But what makes Enfis unique is that its proprietary technology allows its LEDs to change to virtually any colour in the spectrum - a staggering four billion colour combinations. The technology can be applied to a range of uses, including in theatre lighting, retail operations and sports events. Since listing, the company has signed two distribution deals, one in the US and one in Asia, the latter being a contract with electronics distributor Mobicon, a Chinese group with over 5,000 customers in 73 countries.

Although financial details of these deals have been kept under wraps, there are signs that Enfis's technology is gaining approval with a variety of industrial users.

Investors do not need the memory of an elephant to recall the technology disasters of the dot-com boom, and Enfis is not expected to make a profit until the late 2008 at best. So, not one for widows and orphans, but one for brave investors willing to take another look at technology.

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