The Investment Column: Chief goes but S&F remains a buy

Dividend yield makes CI Traders worth holding - Foundations solid at Keller, but not the time to buy yet
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The Independent Online

John Hodson, the chief executive of Singer & Friedlander, yesterday announced his retirement from the banking and fund management group after 35 years with the company.

John Hodson, the chief executive of Singer & Friedlander, yesterday announced his retirement from the banking and fund management group after 35 years with the company.

The business he leaves behind is much changed. Only four years ago it was the co-owner of that now formidable City force, Collins Stewart. The broker was spun out of S&F in a management buyout in 2000, and S&F yesterday announced it had sold off the last chunk of Carnegie, a Nordic investment bank it has owned since 1995.

This leaves S&F to concentrate on the smaller, more stable world of private banking, asset management, and loans for wealthy individuals and small businesses. Profits from these have risen 40 per cent over the past six months. With stock markets improving, customers are feeling more confident about investing, boosting profits in S&F's asset management arm by 70 per cent. But asset finance, which provides loans to individuals and small companies for middle-ticket items such as cars and insurance premiums, is under-performing. On advances of £555m, it only made profits of £1.5m, down 54 per cent on 2003. If this does not improve, S&F may exit the business.

Getting out of the investment banking and broking bear pit means that the streamlined, more focused S&F can focus its attentions on long-term fee income from clients. Its asset management profits will always be linked to the performance of stock markets, but S&F is, in any case, far more dependent on its solid, reliable banking business.

Acquisitions made this year, such as the Wintrust banking unit and the Atlantic Wealth Management division from Amvescap, have helped cement its position and earnings from these will feed through next year. Analysts at Cazenove think Wintrust alone will bring in £2.3m of revenues in the second half of this year, and for its £53m, S&F got £43m of net assets. This gives S&F significant capital backing, from which there is the potential for organic growth or through acquisitions.

At 266p, S&F trades at about 16 times 2005 earnings. Not bad, given some expectations of a 28 per cent increase in earnings next year. S&F will also remain the subject of bid speculation while it remains a small-scale, specialised player. Buy.

Dividend yield makes CI Traders worth holding

CI Traders is big business in the Channel Islands. At some time or another, most inhabitants will shop at one of its supermarkets, use one of its garage forecourt outlets, drink some of its locally brewed beer at one of its pubs, eat at its restaurants or rent office space from its property division.

The conglomerate, which also includes the Marks & Spencer franchise in Jersey, yesterday beefed up its property position, buying out ComProp, the owner of a retail park on the edge of St Peter Port in Guernsey, where one of CI's Checkers supermarkets is based. The site has room for further development, with a petrol station, more retail outlets, a bank, flats, and other leisure facilities in the pipeline. CI, which already had a 7.7 per cent share in ComProp, is buying the company in a cash and shares deal worth £51m.

CI is clearly an ambitious business that wants to be in the driving seat of its fortunes, owning the property behind its retail and leisure businesses. Further acquisitions are probable.

At 60p, CI trades at about 11 times 2005 earnings forecasts, but its mishmash of investments has so far failed to interest the City.

The ComProp deal shows an increasing emphasis on property ownership, meaning that the company's net assets per share will become a more important measure of its value. The dividend yields an attractive 6 per cent, which makes the shares worth holding.

Foundations solid at Keller, but not the time to buy yet

Keller Group, the engineering business, specialises in ground work and has been busy building decent foundations for its shareholders. Ground engineers undertake structural work to strengthen the foundations for new buildings and carry out remedial work on old sites. It also prepares the ground before building starts.

A good geographic spread and a sensible split between public and private contracts means this is basically a stable business. However, having 50 per cent of turnover from the US did mean yesterday's interim results were marred by a £1.1m adverse currency impact contributing to a 13 per cent decline in pre-tax profits for the six months to June 30. Turnover was up 6 per cent at £294.1m amid market relief that Keller has sorted out margins at Suncoast, a US subsidiary, which had been chasing volume at the expense of profits. However, it has now forced through price increases that have restored margins

Its shares rose 4p to 300p giving a price earnings ratio of 12. Being aligned to the US economy, this is a hold for now.

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