The Investment Column: Lonmin looks a likely bid target

Restructured Investec could be a banker - Accident Exchange is the right vehicle for growth
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The Independent Online

The South African mining company Lonmin is one of many whose results are suffering from what one broker charming calls "dollar mange".

The South African mining company Lonmin is one of many whose results are suffering from what one broker charming calls "dollar mange".

The company is no dog. But it does sell all its products - platinum, palladium and rhodium - in dollars, whose value is tumbling on fears over the US deficits. At the same time, Lonmin is having to pay for the running of its mines, and the wages of its miners, in the South African rand. With the South African economy on an even keel, the value of the rand in the year to 30 September was 16 per cent higher against the dollar than in the previous 12 months. And it has strengthened further since the end of Lonmin's financial year.

The company sets its dividend in dollar terms, too, and while it was held at 72 cents, UK shareholders have since witnessed its value in sterling terms slide substantially.

Unfortunately, currency movements did not fully explain the disappointing full-year figures that Lonmin released yesterday. Profit before tax, at $290m (£154m), was flat on last year. Costs in South Africa appear to have been higher than anticipated. As well as the obvious costs of running and staffing a mining project, Lonmin has this year been spending to comply with black empowerment legislation by transferring stakes in some of its assets to a new company. It has also been repairing the damage from an explosion at a smelter.

Platinum group metals prices have risen strongly in the past year, up about 17 per cent on average. The demand for platinum in fuel cells, catalytic converters for cars and in jewellery ought to keep demand for the metal growing in future, but it seems that the speculative gains that have driven the price high this year might have run out of steam.

So the trading outlook is cloudy, and the corporate strategy is still to crystallise. Lonmin is looking for acquisitions to diversify out of South Africa and out of platinum. More likely, it will get taken over, and for this the shares are worth holding.

Restructured Investec could be a banker

The wind is firmly in Investec's sails after a major clean-up at the South African financial services group, which is listed in London and Johannesburg. Its first-half results yesterday were a marked improvement on previous years.

The chief executive, Stephen Koseff, says he restructured the group to make earnings more stable and broad-based.

Investec sold its business in Israel, radically cut back its operations in the United States and reduced its focus on investment banking, where earnings are more volatile. The main thrust is to grow the UK and Australian businesses organically, though the company said it would consider bolt-on acquisitions on the private banking side.

Private banking is now the main driver of earnings and the division accounts for 46 per cent of Investec's operating profit. Analysts said they would upgrade their full-year forecasts after Investec's first-half pre-tax profit surged to £95.9m from £62.7m a year ago. Within that, private client and institutional money management profits rose thanks to a pick-up in stock markets, which has helped attract new money into many of Investec's products.

Investment banking is an area of some weakness where operating profits fell 10 per cent to £18m and the company is struggling to find a niche. But the result was at least no worse than expected and there are hopes for a pick-up next year.

Buy.

Accident Exchange is the right vehicle for growth

Accident Exchange loans out BMWs and Mercs to drivers who have had their own posh cars bashed into and sent to the garage through no fault of their own. The company then claims back the money from the other driver's insurer.

It is a business model well known to the stock market since the float of Helphire, the market leader, in 1997. The difference with Accident Exchange is that it operates at the upper end of the market and that its services are offered to drivers through car dealers rather than insurance brokers.

The shares were practically given away at 25p in the flotation in May. Yesterday, after strong interim results, they were up a further 5p to 213.5p. This is a young company and is ahead of schedule on the growth plan it set out at the time of the float, having a fleet of 586 vehicles now. It recently won business from DaimlerChrysler Retail and Glasgow Audi, taking the company into Scotland for the first time.

The aim is to have won enough business to justify a fleet of 1,500 vehicles by 2007, generating profit of perhaps £16m a year. It seems plausible, given that expectations of profit this financial year have risen from £4.1m at the float to £7.6m after yesterday's upgrades.

The costs of adding to the fleet mean taking on more debt than many other small companies but, done prudently, it is a risk worth taking. Worth a punt.

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