<preform>The Investment Column: Hold out for a better price on F&C</preform>

The times are too tough to buy House of Fraser; McAlpine looks solid as it puts troubles behind it
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The Independent Online

The new enlarged F&C Asset Management - fresh from its reverse takeover by Isis - rolled out its first set of full-year results yesterday, boasting that its new status as a top five UK fund manager meant it had achieved one of its primary objectives two years ahead of schedule.

The new enlarged F&C Asset Management - fresh from its reverse takeover by Isis - rolled out its first set of full-year results yesterday, boasting that its new status as a top five UK fund manager meant it had achieved one of its primary objectives two years ahead of schedule.

But while F&C certainly has scale, it will be several more months before shareholders can be assured that the merger with Isis was the right move. The costs of the deal put the 2004 results into the red for the third year running, at £13.8m, compared with a loss of £8.6m in 2003. Sales on continuing operations were £119.3m, up from £111m. Annual savings of £33m are promised, but these will not be fully realised before the first half of next year.

Meanwhile, the group was hit by a £5bn net outflow of funds under management in its institutional business. Several major clients obviously decided the uncertainty of a large-scale fund management merger was not something they wanted to be a part of - another worrying trend which shareholders will be anxious to see reversed.

Although there remains much to be optimistic about at F&C - a strong management team and the potential to accelerate profit margins through its sizeable asset base, for example - there is still little certainty for investors at the moment. The effects of the group's controversial decision to ditch its strong retail "Isis" brand have yet to be seen, and it will be several months before integration of the two businesses is complete.

Its biggest attraction, however, is its price. Trading at 15 times next year's forecast earnings, F&C looks cheap -compared with the likes of Schroders and Amvescap - and is still well below the 260p at which Friends Provident, its major shareholder, bought shares at the time of the merger. On this basis, it may well be worth a punt for those with an appetite for risk. Our instinct, however, is that there will be cheaper opportunities to buy. Hold.

The times are too tough to buy House of Fraser

The sun might have eventually come out, but the snowy start to spring has not been kind to clothing retailers.

House of Fraser admitted yesterday that its like-for-like sales had plummeted because of the recent chill - even if John Coleman, the chief executive, was at pains not to mention the weather.

In the past six weeks, underlying sales were 4 per cent lower, and the gross margin was down 30 basis points. Mr Coleman was confident that HoF could make up for the slow start, as its perennial cost-cutting campaign bears fruit and people restock their summer wardrobes.

The other major pluses include the new space initiative, which will see the 48-store group expand its square footage by 23 per cent during the next three years, opening seven new stores - including two in the past week.

Then there is the loyalty card deal with Barclaycard, which will allow HoF to make some money from its store card for the first time since Mohamed al-Fayed floated it 11 years ago.

But the retail environment is getting tougher. HoF has yet to prove that its push into branded fashion will see it through tougher times. Tom Hunter, the Scottish entrepreneur who nearly bid for it, gave up on the group last year and so should you. Avoid.

McAlpine looks solid as it puts troubles behind it

After two profits warnings last year, Alfred McAlpine had to restore confidence with yesterday's annual results and the outcome looked promising. The former builder, now turned capital projects and support services group, unveiled a strong order book and expects to return to double-digit profit growth this year.

The problems faced by its infrastructure business last year seem behind it. This division took a hit amid major changes in one of its key markets, the utility industry, with regulatory reviews in the water and electricity sectors and network sales in the gas sector. Ian Grice, McAlpine's chief executive, said yesterday that margins and profits at the division should recover fully by 2007.

Two-thirds of the group's business is now in support services. Underlying group profits climbed 6 per cent to £38m and McAlpine said it had a record order book of £3.2bn.

A continuing share buy-back programme and successive 10 per cent rises in the dividend should help support the shares, up 5.6 per cent at 312p.

There is upside in the shares, which trade at a 25 per cent discount to peers such as Carillion and over time should move to a similar rating. Buy for recovery.

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