City File: Bail-out at the Royal Bank of Scotland

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TWO serious punters have bailed out of Royal Bank of Scotland in the past couple of weeks, prompting fears that the bank may soon be regarded as going ex-growth. This contrasts with the way the Bank's shares have outperformed the market over the past year, largely because of the sparkling performance of its Direct Line insurance subsidiary.

Last month Tiger, a New York hedge fund, was a big seller and last week, Morgan Grenfell switched out of Royal Bank into National Westminster. The shares, down 8p to 410p on Friday, may fall further. Avoid.

SHARES in Highland Distillers, famed for Famous Grouse, remained unmoved at 400p last week, despite the vastly improved profits announced by Remy Cointreau.

Yet these highlighted the fast-increasing value of Highland's 30 per cent stake in Orpar, Remy's holding company. Highland is also gaining from the ability of Remy's worldwide distribution system to increase exports of Highland's major brand.

Until recently 'the Grouse' was the only big brand of Scotch that relied almost entirely on the ferociously competitive home market. As a result, Highland's last results, showing a sturdy 10 per cent increase in profits, were better than most of those in the drinks sector. It remains the best of that particular bunch.

IT'S ALL gloom on the Forte front after two decidedly bearish analyses of the hotelier. Charles Mason at BZW says trading prospects are good, but not good enough to justify the premium valuation - despite the value of Forte's stakes in Gardner Merchant, Savoy Hotel and the airport catering businesses.

Mark Finnie of NatWest fears the value of any hotel group following the Queens Moat House debacle. Finnie exaggerates the need to depreciate Forte's largely freehold assets. But his worries could well put a damper on the share price. Steer clear.

IN GRUNGY markets even the best new issues stagnate. So it is with Chez Gerard, back at the 98p issue price after rising to 118p. Greig Middleton, brokers to the ambitious and tightly run London restaurant group, stress prospects have improved in the three months since flotation.

Gerard has used pounds 400,000 of the cash raised in the float to pick up Scott's, the famous Mayfair restaurant, which has been losing money on a turnover of pounds 1.5m, half the late 1980s figure. The new owners have installed their top trouble-shooters, and Scotts could add at least pounds 500,000 to 1994 profits. Even ex-Scotts, profits are likely to rise by around a third to pounds 1.67m pre-tax, putting the shares on an undemanding p/e of 14. Solid fare.

TOMKINS' shares have come back to 215p, in line with the market, since we recommended them at 251p in March. Results for the year to end-April, to be announced early tomorrow morning, will provide solid evidence for rerating the shares, out of fashion since the purchase of the bakers RHM early last year. Pre-tax profits are likely to be up a healthy 50 per cent to about pounds 250m.

Chief executive Greg Hutchings will confirm that RHM contained no nasty surprises and has now been sorted out. The future looks rosy: profits from the important US subsidiaries are booming, and Tomkins' willingness to invest in RHM's badly neglected brands is paying off. Pile in.

FEELING in a counter-cyclical mood? Then try tobacco. Battered by the US Food and Drug Administration, the two-company smokes sector fell by 28 per cent in the first half of this year.

Of the two groups, BAT Industries and Rothmans, stockbroker Panmure Gordon prefers the latter because is has virtually no exposure to the US, where the industry has complained that it is being regulated out of existence.

Now that its South African pedigree is politcally acceptable, Rothmans, at 343p, represents good value. Panmure expected profits for the year to next March to jump from pounds 343m to pounds 526m, helped by pounds 665m cash. That should take the earnings multiple down to less than 10. But beware: Richemont owns 62 per cent, so other shareholders must dance to their tune.

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