The Investment Column: Risk makes Dixons one to avoid

Amec gets back on track but shares are too pricey; Plenty of growth left in iSoft despite recent surge

Dixons Group looks a little misnamed these days. The flagship electrical retail brand is not what it was, and hardly describes a company that has shops as far afield as Hungary and the Czech Republic.

Dixons Group looks a little misnamed these days. The flagship electrical retail brand is not what it was, and hardly describes a company that has shops as far afield as Hungary and the Czech Republic.

Rising rents and sliding prices have forced the group to close one-third of its Dixons branded stores in the UK during the past couple of months; sales from its remaining 214 sites now account for just 5 per cent of the company's turnover.

In the UK, the group also owns PC World, Currys and The Link. Yesterday's full-year results highlighted The Link as the star performer - with like-for-like sales up 10 per cent. But it is also the smallest of the company's four brands, so the meagre 2 per cent sales uplift from PC World had more impact.

Soaring demand for plasma and LCD television sets provided Currys, which is the group's biggest division, with 379 sites, with a boost over Christmas, taking like-for-like sales to 4 per cent for the financial year.

Which leaves Dixons. Like-for-like sales at Dixons fell 5 per cent last year, and after even stripping out the effect from the 100-odd sites the group has closed, sales would still have been negative.

There were few clues about how Dixons intends to improve the performance of what is, nominally at least, still its core chain. It is trying its luck with larger stores, called Dixons xL, situated in "off-pitch" space in town centres. But it is early days and the company hasn't found the right formula yet.

The decision to hand back £200m of cash to shareholders leaves the group with plenty to play with to expand in Europe. But it will be a while yet before its European stores are contributing enough to offset the risks to UK consumer spending. With those risks rising with every interest rate rise, there is every reason to remain cautious about Dixons' prospects. The shares, up 3.5p at 162.75p, are cheap relative to the sector - but with reason. Avoid.

Amec gets back on track but shares are too pricey

Life isn't getting any easier for Amec, which is trying to push itself up the construction industry food chain. It has been shedding low-margin bob-a-jobs in favour of highly skilled niches in road maintenance, and in oil and gas processing plant design and construction. The self-styled "project management and services company" was again asking the City to nudge its forecasts down a little yesterday, as its North American industrial customers continue to be able to demand cheap prices.

At least the UK and continental European businesses have been improving to take up some of the slack. And the worst performing, lowest margin bits of the US construction business are already being shut down, at a cost to profits this year of £26m. There was also the disposal yesterday of Amec's French regional construction business for £14m.

The value of future orders for the remaining businesses was £3.2bn at the end of April, up from £3.0bn at the start of the year.

So the company continues to move slowly in the right direction, but does not yet seem to be finding stellar growth in the areas it has chosen. This may come, but new contracts to help in the rebuilding of Iraq will take a while to affect the profit line, if they ever do. And the group continues to have relatively high debts for its size.

At 270p, on 10 times this year's earnings, the shares are not cheap enough to be enticing.

Plenty of growth left in iSoft despite recent surge

IT IS the holy grail of health care: doctors better clued-up about their patients; automatic referrals for tests ahead of a meeting with a consultant; immediate information on the nearest or soonest available specialist; electronic patients records so consultants don't need to start from scratch when taking on a new case. Wouldn't that make a difference to how the public perceives the National Health Service?

Well, it is coming soon to a doctor's surgery near you. The NHS has just finalised five vast new contracts for IT services to improve efficiency, and iSoft, the mid-cap software company, has won business in three of them. The victories, and the merger with its long-standing rival Torex, have transformed iSoft and turned it into one of the sector's most interesting long-term investment prospects.

The company already had a strong position in the NHS, and the worry was that iSoft would lose as much business as it would gain as IT upgrades are concentrated with the five new regional contractors. This does not seem likely now, and iSoft was yesterday setting out the extra work it will do in specialist areas such as accident and emergency and maternity.

It is also muscling in to the health services of other countries, especially in the Far East, which are looking to the UK for ideas on how to procure more efficient IT systems. The company promised accelerating profits growth in 2006 and 2007.

We recommended our readers buy iSoft shares back in November 2002, when they were 196p, and yesterday they were back to within pennies of a record, up 30p to 415p. The company's success in the NHS has validated its core electronic patient records software, and should give investors confidence that substantial growth is available. Buy.

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