Bus business shines at Cowie

Although Cowie's half-time profits of pounds 27.1m were well above market expectations, it would take a brave analyst in the currently uncertain UK car market to push through big upgrades. Full-year forecasts look like being nudged up from about pounds 53m - but investors would be wise to err on the side of caution.

That said, yesterday's 32 per cent rise in interim profits shows Cowie's strategy of diversifying into complementary areas of the transport market is paying off. The retail motor industry is plainly still vulnerable to interest rate rises but Cowie has proved that motor dealers need not necessarily be viewed as boom-to-bust concerns.

Certainly, Lex Service has noticed the merits of Cowie's policy of putting its eggs in several baskets and it is pursuing a similar strategy, which is reflected in last week's purchase of the Multipart van and truck parts business.

Cowie's traditional operations performed well. Profits from leasing rose 19 per cent to pounds 16.2m, and the pounds 1m rise in motor retailing profits to pounds 6.4m must be seen as a solid performance given the state of the market.

But it is the newer businesses that are really shining through. Building up bus operations, where profits rose from pounds 863,000 to pounds 3.3m in the six months, is helping to dilute the impact of more volatile retailing.

As bus routes are set for periods up to seven years, the revenue stream is more stable.

Cowie's expansion is certain to continue over the remainder of the year, with acquisition targets in the UK and Europe identified. The company said yesterday it could make a pounds 30m purchase.

A car leasing operation on the Continent and further UK motor dealerships are being considered - and Cowie is willing to take gearing up to 300 per cent mark if the right opportunity comes along.

The company also has a pounds 375m syndicated loan facility, of which only pounds 275m is taken up.

Not all the expansion has been free from pain, however. The purchase last year of South London Transport has proved expensive; considerable improvements were needed to vehicles to secure the operating licence.

SLT made a zero contribution to profits in the first half, though the fleet improvements are complete and the division should bounce back in the second half.

Now that the SLT problems are behind it, there is considerable scope for improvement in the bus division as a whole. The aim should be to drive margins into double figures in the second half compared with the 8.4 per cent return seen on the pounds 47m bus turnover in the first half.

The upturn in bus operations and spread of earnings from leasing, combined with the good management, mean Cowie will continue to perform strongly.

But recent re-ratings, putting the shares on a multiple of about 11.8 at yesterday's 307p, up 5p, mean that Cowie shares are now pretty fully valued.

Inspec gets the

chemistry right

The chemicals sector had a good day yesterday as two companies reported better-than-expected figures and both saw their share prices jump. But that is about the only similarity between Inspec and Yorkshire Chemicals.

Shares in Yorkshire closed 24p higher at 319p, largely reflecting the market's relief that last month's warning that first-half profits would fall proved slightly too pessimistic. Profits slipped from pounds 7.2m to pounds 5.9m, but pounds 800,000 of that was a one-off legal charge and latest news on trading suggests the worst is over.

A month ago, the company was complaining that the consumer was on strike, hitting sales of speciality chemicals for the leather and textiles industries. Yorkshire was failing to pass on raw material price rises in highly competitive markets.

A month is a long time in chemicals, however, and the company said yesterday that industrial demand had firmed, de-stocking seemed to have come to a close and raw material cost pressures were moderating with many prices below peak levels.

Yorkshire has had a dreadful year, with its shares falling from a high a year ago of 447p. At 319p, the shares stand on a prospective price-earnings ratio of 15 on the basis of forecast profits of pounds 14m.

That is roughly the same rating as the market is putting on shares in Inspec, following a near doubling in the price since flotation in March 1994. Part of a flood of new issues in that month, it has been one of the few undisputed success stories since.

Inspec faces some of the same pressures as Yorkshire, making coatings, lubricants and acids, all of which rely on basic chemicals whose prices have been soaring.

Analysts believe, however, that it has been much more successful at passing on increases and even that margins could widen as ethylene prices ease, but Inspec's product prices continue to rise.

Another key difference is that Inspec is developing a strong reputation for making earnings-enhancing acquisitions. Analysts were particularly impressed by the profits from a former BP site in Antwerp that chipped in pounds 6.1m profits for the three months since it was acquired. That helped lift pre-tax profits from pounds 6.9m to pounds 13.6m in the six months to June and prompted forecasts for the full year of pounds 32m, putting the shares, up 32p to 313p, on a forward p/e also of 15. On a rising trend, they are the more attractive.

CentreGold loses its shine

Even shoppers who don't know their Super Mario from their Sonic the Hedgehog might be aware that everything has gone horribly wrong for the computer games market over the past 18 months. Anyone in search of further evidence of the malaise need look no further than the fortunes of CentreGold, the Birmingham-based distributor and publisher of computer games software.

Floated at 125p in October 1993, CentreGold's shares reached 169p in November 1993 but have been on a downward trend ever since. Yesterday they fell a further 13 per cent to 45p after the company warned that a hoped-for recovery had not materialised and that the first-half loss of pounds 3.9m announced in April was likely to be repeated in the second half, with no dividend payment. The company looks destined to fall into the arms of a more powerful suitor.

CentreGold's problems mirror those of the computer games market as a whole. Fuelled by voracious demand from the Sega and Nintendo generation, the value of the worldwide computer games market rocketed from pounds 4.5bn in 1989 to pounds 13.2m in 1993. But UK sales fell from pounds 750m in 1993 to pounds 510m last year, as many buyers decided to wait for the introduction of new technology.

Lareg companies such as Nintendo announced a year early that new products would be available in 1996. Sales of the old, cartridge-based systems dried up as street-wise teenagers waited for new compact disc-based systems such as the Sony PlayStation and the Sega Saturn to reach the shops.

Like everyone else in the sector, CentreGold was hit by the downturn as retailers discounted unwanted games to clear their shelves. CentreGold will phase out its cartridge games by tChristmas and has delayed its multi- media titles until next year, when they will all be released on compact disc.

For investors, the computer games sector is something of a boom-bust area. It combines the hit-driven qualities of the movie or music industries with the volatility of new technology that every couple of years threatens to make hardware redundant. The result is that few companies retain an independent listing for long before either going belly-up or being taken over. For gamblers only.


Turnover pounds P/Tax pounds EPS Dividend

Allied Irish Banks (I) - (-) Ir177.1m (Ir161.7m) Ir16.1p (Ir14p) 5.2p(4.6p)

Clinical Computing (I) 924,000(735,000) -357,000 (-227,000) -2.2p (-1.4p) - (-)

Cowie Group (I) 528.7m(485.3m) 27.1m (20.5m) 12.3p (10.3p) 3.05p (2.725p)

Flying Flowers (I) 12.6m(6.25m) 1.1m (589,000) 4.14p (2.36p) 1.08p (0.76p)

Inspec Group (I) 83.8m(34.9m) 13.8m (6.9m) 9.5p (6.5p) 2p(1.33p)

Lombard Nth Cntrl (I) - (-) 105.1m (111.2m) 4.8p (5.1p) 1.2p(1.2p)

Nat. West. Bank (I) - (-) 872m (767m) 34p (-) 8.4p (7.3p)

Pacer Systems (I) $13.8m($13.1m) $515,000 ($390,000) 6c (4c) 3c (3)

Regal Hotel (I) 5.6m(2.3m) 490,000 (5,000) 0.859p (0.02p) - (-)

Trencherwood (I) 8.8m(9.7m) 700,000 (860,000) 0.93p (1.03p) - (-)

Wyko Group (F) 59.6m(58.3m) 1.7m (-4.2m) 2.9p (-10.62p) 0.75p(-)

Yorkshire Chems (I) 63.4m(60.5m) 5.9m (7.2m) 9.2p (11.2p) 2.75p(2.75p)

(Q) - Quarterly (F) - Final (I) - Interim

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