BAA's safe and pleasant journey

BAA's start to the year has been solid, if uninspiring, and yesterday's share price fall had more to do with profit- taking than concern about underlying growth. Worries about the Heathrow rail link aside, there was nothing in the first-quarter figures to suggest BAA's two fundamentals - retailing and passenger numbers - are faltering.

Pre-tax profits to June of pounds 121m, up from pounds 111m, were bang in line with forecasts, and exclude a pounds 6m exceptional gain on a property sale. Net retail income of pounds 98.2m was up 11.5 per cent - not bad given that the shopping areas at many airports were hindered by building work. Passenger traffic rose 8 per cent, due partly to Easter falling within the quarter.

However, real growth in the future will come from international expansion and it was disappointing that Sir John Egan, chief executive, had little to say that was new.

BAA keeps emphasising that it is in pole position to take over management control of one or more Australian airports when they are privatised, and that a deal to run Indianapolis airport is almost complete. BAA also disclosed that it is talking to the authorities about running Italian airports. But the City is becoming impatient and the company will need to persuade investors with something concrete that it is not simply promising jam tomorrow.

Shareholders should also keep an eye on the financial implications caused by the collapse last year of tunnelling work on the pounds 300m Heathrow Express rail link. Not only will the delays in opening the link mean lost revenues, but it now appears that not all aspects of the construction damage were covered by BAA's insurance policy. Although Sir John was adamant that the damage would not affect the project's long-term viability, the company was nevertheless vague about cost implications.

Analysts' profit forecasts for this year are being held at around pounds 430m. That gives earnings of 31.5p, which implies a forward multiple of 15, a deserved premium given BAA's long-term prospects even if other worries will hold the shares back in the short run.