The Investment Column: Inchcape is a buy at this rating

Profit warnings fail to dull Filtronic's lure - Gourmet appeals only to an adventurous palate
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The Independent Online

Global political and economic uncertainties have not put people off buying luxury cars, to the great benefit of the car dealer Inchcape.

Global political and economic uncertainties have not put people off buying luxury cars, to the great benefit of the car dealer Inchcape.

Good demand, together with fortuitous events such as the Singaporean government allowing its citizens to buy more cars and the reform of the "block exemption" rules in the European Union, have made for a buoyant trading period.

Inchcape has operations spread over many countries and is looking to expand into even more. Its geographical spread is paying off.

Yesterday's interim results showed underlying pre-tax profit up by one-third to £88.9m - well ahead of expectations. Inchcape's car dealerships include Mercedes-Benz, BMW, Ferrari and Toyota/Lexus.

There was a record performance from Australia and Singapore, while the Hong Kong market recovered from the impact of the Sars epidemic. The UK saw volume increases and gains from improved management systems.

In Singapore, which produced almost one-third of group profits for the period, the government issued more Certificates of Entitlement, which citizens need to buy cars in that highly regulated society. Inchcape's market share in Singapore was more than 31 per cent, as profits in the territory jumped 44 per cent to £29.6m.

In the UK, the reform of Block Exemption rules was already showing benefits - the EU has cut the ties which used to allow manufacturers to dictate to dealers how they do business. New car volumes in the UK were up 7 per cent, with operating profit up 33 per cent.

The freeing up of dealerships has meant that Inchcape went out and bought rivals as well as swapped dealerships with other companies to produce more coherent regional coverage. Inchcape now has, for instance, the biggest independent contiguous territory for Mercedes-Benz in this country.

The company's shares closed at 1,672p, putting the stock on an undemanding forward multiple of 11. Buy.

Profit warnings fail to dull Filtronic's lure

Two profits warnings, management changes and yesterday a breach of banking covenants have not endeared Filtronic to the City.

The company makes electronic equipment for mobile phone handsets and for mobile telecoms infrastructure. Its microwave technology is also applied in products for the defence industry. It produces, most importantly, mobile phone antennae and modules for base stations that boost the strength of the signal.

The trouble is that its dollar earnings are translated into sterling at the end of each financial year. The weakening of the dollar over the period reduced reported sales by £13.4m and operating profit by £3m.

Although the chairman, Professor David Rhodes, says that the underlying business is "fine", he admits to considerable price erosion as the company's customers in the mobile phone industry seek to cut costs.

Professor Rhodes used to be chairman and chief executive. He has agreed to split the roles, with a chief executive joining in September. The company has recently lost its finance director and the chief executive of a key division, Professor Chris Snowden. As a result of the £409,000 loss Filtronic reported for the year ended 31 May, the company breached its banking covenants, which were based on earnings. It has not missed any repayments though and the banks have now agreed to base their conditions on broader measures, to be negotiated.

Filtronic has a promising business and, at 160p, is the cheapest semiconductor stock in the UK, so it's worth a hold.

Gourmet appeals only to an adventurous palate

Gourmet Holdings started out as the Maddisons coffee shop chain, but after failing to compete with Starbucks, it made a quiet exit.

This process finished last year, leaving it with four mainstream restaurants in central London, which operate under the Richoux brand. But restaurants in central London have also had a tough time, as world uncertainties kept its tourist trade away. So the recently renamed Gourmet Holdings is expanding into gastropubs - high quality restaurant-type food within a pub.

It recently bought three from the Bel and the Dragon chains in the South-east, and yesterday said it had acquired another property. These will return the group to profitability.

Gourmet certainly has a high calibre management team and shareholder register. Andrew Guy joined from the City Centre restaurants group as managing director yesterday. Philip Kaye, who set up the Ask Central pizza chain, recently took a 13.5 per cent stake, which shows some confidence in the business's future. It is expected to become profitable in 2005, but it is still a high-risk operation. On 2005 forecasts, it trades at a whopping 47 times earnings and further development of its gastropubs will take time. The shares are only for those with an adventurous palate.

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