The Investment Column: Reuters reports a good news story

From being a barometer of pain in the financial services industry, Reuters these days has acquired the habit of pleasantly surprising investors. So it was yesterday with the financial news and information giant's first-quarter guidance.

From being a barometer of pain in the financial services industry, Reuters these days has acquired the habit of pleasantly surprising investors. So it was yesterday with the financial news and information giant's first-quarter guidance.

Reuters' revenues have been shrinking since the start of 2002, as a result of the spectacular bursting of the stock market the previous year. As the City contracted, axing workers, so the number of Reuters screens needed to serve those employees left diminished.

Added to that were Reuters' internal problems: a bloated workforce, poor customer service and a hopelessly complicated product range that was not as good as its rivals'.

Tom Glocer, chief executive since 2001, has set about fixing this great British institution. In his time in charge, the Reuters workforce has been cut by 5,000, and the hundreds of products have been slimmed down to a new range of 50.

Reuters is still not seeing underlying revenues growing, but the rate of decline has been easing for over a year now. The company said yesterday that sales in the first quarter of 2005 should be down 1.5 per cent, better than the minus-2 per cent forecast. Analysts are split over whether the year as a whole will be slightly positive or slightly negative, but no matter: sales will be positive pretty soon.

Also on the upside is the likely sale of Reuters' Instinet US electronic brokering business. That could mean a return of some £1.3bn to shareholders, through a buyback programme or special dividend.

We make no apology for being uncomfortable recommending Reuters shares at 307p last year, since when our readers have missed out on a 27 per cent rise. Hardened gamblers have had opportunities from as low as 95.5p. The point is that, at last, Reuters has moved from being a gambler's stock to being a serious investment proposition. Valued at 14 times forecast 2006 earnings (more attractive than many media sector shares), with the recovery established and with better news to come, the shares are a buy.

Balfour Beatty still a buy despite Hatfield rail trial

On Monday, two Balfour Beatty executives and the company's rail maintenance subsidiary appeared at the Old Bailey charged with manslaughter over the Hatfield derailment, which killed four people in 2000. The company denies and will vigorously defend the charges, but the year-long trial could throw up challenges to its industry-leading reputation, and there is the prospect of an unlimited fine if it is found guilty.

To what extent do investors need to worry about the news from court? Little, to be brutal. The rail maintenance side of Balfour Beatty was only a small part of this £1.3bn support services behemoth, and day-to-day rail maintenance was taken away from the private sector after Hatfield in any case. Balfour Beatty's remaining rail replacement business won a vote of confidence from Network Rail last year when it gained a larger portion of new contracts. A fine for the rail maintenance arm should be easily accommodated within the finances of the group as a whole. In other words, it will take some pretty explosive courtroom revelations to upset the share price.

This is up by a third since we said buy last March, and at 321.5p, on 13 times earnings, it still doesn't look expensive. The contracts keep rolling in for all areas of the business, the hospital and school building projects, the road maintenance work, and increasing business for its social housing building subsidiary, Mansell. There is a formal order book of £6.5bn, with £1bn of further work where Balfour Beatty is at "preferred bidder" stage, and a vast pipeline of projects to bid for.

Longer-term, there are growth opportunities in the US, where it has sorted out a couple of troublesome businesses, and through its joint venture in Asia. Buy.

Tough trading makes Uniq one to avoid

The failure of Marks & Spencer to produce sparkling sales over Christmas makes life uncomfortable not just for Stuart Rose, the retailer's chief executive. Its fortunes also have a knock-on effect on the food production group that supply it with its own-brand goods.

Uniq, which makes desserts, chilled and frozen ready meals, pizzas, salads, sauces, spreads, sandwiches and dips for supermarkets such as M&S, said yesterday that trading over the past three months was disappointing. Sales to M&S, its largest customer, were significantly below hopes. Sales also slowed in France after increasing competition for its healthy desserts.

The group also announced it had lost £12m of business from J Sainsbury, but had won £20m of business from Tesco. This demonstrates the ever-growing power of supermarkets, who, determined to squeeze more and more from their suppliers, are switching contracts with alarming alacrity. Uniq is already struggling to increase margins after rises in raw material costs.

The company is still in a potential bid situation, sparked last year when Duke Street Capital said it was mulling an offer. Uniq's pension fund deficit - more than £100m - has caused the talks to stall and these liabilities could be costly to shareholders regardless of whether or not a bid emerges. Given the uncertainty and tough trading conditions surrounding the group, avoid.

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