City File: Beer is caught on the hop

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The Independent Online
SUCH is the contrary nature of the stock market that the brewery sector may be in for a tough time after daring to outperform the market by nearly 6 per cent since January.

Much of that surge rested on hopes that the brewers would gradually be able to fatten profit margins. But the latest word from Bass, an otherwise well-managed drinks and hotel giant, is that the squeeze on margin pressures is forcing the group to withdraw capital from its beer business in an effort to preserve investment returns.

That is a dire decision indeed. Volumes are apparently still falling, casting a pall over the whole sector - including the new Lazard Brewers Investment Trust for regional breweries. Better to buy good local performers than a package that must now include duds.

MYSTERY hangs over the shares of Ricardo, one of Britain's leading automotive research businesses, which boasts a long list of blue-chip clients worldwide. Profits for the year to end-June were already up a fifth thanks to the efforts of the new managing director, the ex-GEC hard man Christopher Ross. Analysts are now looking for a further lift from pounds 4.5m to pounds 6.25m in the current year, largely thanks to the successful acquisition of a similar American business, FF Developments. Yet the shares, at 138p, yield a nourishing 5.4 per cent, and their prospective p/e for the year is an undemanding 13. Pile in.

RUMOUR has it that the Cable & Wireless chairman, Lord Young, is wondering whether the group could be ripe for a break-up as the only way to realise its real asset value. The shares have come back to 386p since they reached 543p earlier this year on rumours of a Mercury One-2-One spin-off. This could become increasingly likely as the service goes national in 1995 and starts to compete with Vodafone.

But his lordship could be contemplating a more fundamental step: a total split of the group. This makes sense. C&W has a number of juicy little monopolies in growing regions such as the Caribbean. But the big draw is that Chinese investors would be prepared to pay over the odds for C&W's 57 per cent-owned Hong Kong subsidiary, which has a head start in the newly freed Chinese telecoms market. Buy on the current weakness.

THE Silly Season is over, says the well-respected retail analyst John Richards of NatWest Securities about Body Shop International. Facts are, he claims, that 'the restructured management and retail focus is unlocking the international growth potential'. Pre-tax profits for the half year to the end of August could be up by 20 per cent to pounds 12m, and steady expansion continues.

The market has never really understood the stock: early jeers about Ms Roddick turned to awe and overvaluation before the series of troubles over management and, more recently, allegations that the group's claims of environmental friendliness were exaggerated.

All the smoke conceals the solidity of the original concept. Not overpriced at 201p.

SHARES in Norweb, the Manchester-based electricity distributor, should get a fillip on Tuesday when dealings begin in its ADRs on the US Nasdaq market. That will increase its fan club, especially as its five- year guaranteed price regime enables it to predict 8 per cent real annual growth in dividends. That knocks into a bent socket the feeble claims of comparable US utilities.

Indeed, the whole sector could benefit. For, sheep that they are, if Norweb's foray works you can safely bet that the other electricity companies will be flying to Wall Street to line up ADR facilities.

BUY Logica, says Investment Research of Cambridge. The chart analyst firm reckons that shares in the computing service group formed a double bottom reversal between 1990 and 1993 that could still take the price from its present 300p to 400p - a level not seen for nearly six years.

This is not mean chartist mumbo-jumbo. Profits in the year to June jumped by 50 per cent, including the elimination of US losses. Order books are strong, putting pounds 18m profit in reach for the current year. That would put the shares on an easy 16.3 earnings multiple.

THE time could be fast approaching to buy Tomkins again. As predicted from the day it did the deal, the group's shares have been grimly shackled by worries over Ranks Hovis McDougall, the sluggish bread, cakes and condiments combine.

But that has now been largely absorbed and knocked into shape, while the existing businesses have a good mix of recovery potential and continuing growth, according to Nick Wilson at Nomura.

At 213p, the shares yield a generous 4.2 per cent, which takes little account of prospects. The chief executive, Greg Hutchings, should be sharpening his spear to snap up another corporate morsel, which should revive interest in the stock.

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