The Investment Column: Car bling is just the thing to keep Halfords motoring along nicely

Ambitious recovery plans make Inspicio one worth backing; Investcom may prove just a little too risky
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The Independent Online

Halfords was once owned by Boots, during a previous bout of mad-cap diversification by the chemists chain, but has been independent and listed on the stock exchange again since last year. The shares initially climbed to a high of 334.75p before being caught up in the widespread concern about retail trading. Consumers, after years of bingeing on credit cards, are reining in their spending, and there were signs in Halfords' trading update yesterday that sales growth at the chain was slowing down. There were also signs that its margins were eroding after a bout of discounting.

Still, like-for-like sales growth of 2.6 per cent over the six months to the end of September would make other retailers envious. Most of what Halfords sells are "non-discretionary" purchases, that is things people buy because they have to. When your fan belt or brake light breaks, well, you replace it. Cycling is also a fairly resilient pastime in times of economic change. Halfords commands one-third of the bicycle market, and it is now sourcing products direct from low-cost Chinese manufacturers.

The group's growth strategy has been focused on opening new stores and in making more efficient use of its large sites. It now has 402 retail outlets and reckons there is ample room for another 150 around the UK. Creating mezzanine levels in its large, high-ceilinged stores has also increased retail space by one-third, allowing Halfords to create special zones for car bling and dedicated cycle equipment. Some 57 stores have the mezzanine level, and Halfords wants to increase this to more than 100 by the end of the year. Halfords also sees a future in going back to town centres, opening up smaller retail outlets.

The business is not immune to the retail slowdown, but its resilience and niche position mean the shares should continue to motor along. Hold.

Ambitious recovery plans make Inspicio one worth backing

It was back in April that the London Stock Exchange changed the rules governing cash shells to set a deadline for them to buy a real operating business or face delisting. And it was in April that Inspicio raised £3m to hunt for acquisitions in the product-testing industry. It has taken no time in getting on with things, and yesterday came up with the £52m purchase of Inspectorate.

Mark Silver, the chairman, and Keith Tozzi, the chief executive, have not exactly had to look far. They have bought a business they ran between 1998 and 2000, when they were the top pair at BSI Group, which has now decided to sell Inspectorate after a period of heavy investment and a dip into the red.

What is Inspectorate, then? And has Inspicio (which is raising 17 times its market value in new shares) got a good deal?

The company operates mainly in the oil and mining industries, checking the concentration of hydrocarbons or contaminants in oil, for example, or quality of precious metals. Messrs Silver and Tozzi set out a convincing case yesterday that Inspectorate has too many layers of management and too many overheads, so a restructuring will be launched immediately. It also appears that recent investments in the laboratories used by the oil and gas division will soon start to pay off. Longer term, the testing industry will be driven by corporate outsourcing and ever-tougher regulations. Inspicio's recovery plan and aim of consolidating the industry makes it worth backing. Buy.

Investcom may prove just a little too risky

Invasion, civil war and mendacious governments are among the eye-popping staples of a "risk factors" section in circulars from companies operating in emerging markets. So it is with Investcom, the Middle Eastern telecoms group which listed in London yesterday.

The company is controlled by Najib Mikati, the former prime minister of Lebanon, where popular protest has just forced out troops from neighbouring Syria, where Mr Mikati's ally is president and where Investcom makes most of its sales. Already it is not difficult to imagine Investcom becoming a pawn in the struggles of powerful men, and that is before you move down the list of countries where the company trades.

It has 1.2 million customers in sub-Saharan Africa, and is working on plans to set up a mobile phone network in the parts of Sudan where genocide is not being committed, and in Afghanistan, where it won a licence last month.

This is not a stock you can put your pension money into. But the shares shot up 15 per cent yesterday as some institutional investors judged the potential rewards to be as huge as the risks. With the exception of Cyprus, Investcom's operations are in countries where mobile phone use is very low, but where, with gradually improving prosperity, this can be expected to grow fast. In many cases, there is no fixed-line telecoms network to compete against, and the main issue is boosting familiarity with phone handsets.

This is a fascinating company, but it is difficult to judge it worth the risk.

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