City File: Game for a Waddington offer

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The Independent Online
WATCH out for some excitement in the shares of John Waddington, the Leeds-based packaging group which saw off a bid from Robert Maxwell in the mid-1980s. The French- owned Ideal Toys is understood to be interested in Waddington's games side, which makes such stalwarts as Cluedo, Monopoly and Subbuteo.

Waddington says it is not looking to sell the division, but its relatively low profits and the large premium it could command because of its brand names may make it too hot to handle. The question is whether Ideal is willing to pay the price to dislodge this jewel.

At 257p Waddington's shares are at around 15 times estimates of this year's earnings. Could be promising.

The opening of the new Budgens store in Clapham should make it more prominent in some stockbrokers' eyes, but it does little for the strategic direction of the group, which is in effect being steered by the German 26 per cent shareholder Rewe.

The market is waiting for the changes prompted by Rewe, mainly in sourcing and merchandising, to bear fruit. It will have little to chew on from Thursday's half-year figures, which will show pre-tax profits largely unchanged at pounds 3.2m.

The market hopes Budgens can make pounds 8m for the full year, which would put the shares on 10 times earnings. It may be going nowhere, but at 10 times earnings, does this matter?

Sheffield Insulations is hardly a glamour stock, but thanks to heavy backing from Tim Steer at Smith New Court it now has a rating of 20 times prospective earnings. Mr Steer has now turned his attentions to Freeman Group, which is second only to Sheffield as a distributor of insulation in the UK.

It appears that insulation prices are rising. And housing starts look like picking up.

The result is prospective profits of pounds 1.1m in the year just finished, and pounds 1.6m for the current year. Freeman shares have soared from 157p to 198p in the last week, but trade at 13 times this year's earnings. Still worth a punt.

There was a lot of red ink in evidence when Gestetner announced its half-year results, and though it is now making operating profits, the photocopier group's full-year figures, out on Thursday, will be fairly depressing. A loss of pounds 35m, after pounds 50m of exceptional charges, plus a poor market outlook, will bring glum looks all round.

So where is the respite for shareholders? Well, Inchcape has a 15.3 per cent stake, and there is a belief that it will bid, if only to boost its UK earnings to cut down its ACT problems.

A recovery in fortunes should be able to push this year's profits to pounds 20m, putting the shares on a fairly undemanding rating. But unless Inchcape bids, it is hard to see the shares going anywhere.

Watt price National Power? The electricity generator has seen its share price fall from a peak of 509p in December, as Stephen Littlechild, the industry watchdog, decides whether to refer it to the Monopolies & Mergers Commission.

Fellow generator PowerGen is also under the Littlechild looking glass, but National Power is thought to be more vulnerable because it is bigger and owns the bulk of the marginal plants that largely determine pool prices.

Offer's supremo is expected to announce his decision at the end of this week. However, he is widely expected to keep control in his own hands.

Expect the shares to rise from their current 478p once they get the all-clear, only to slump again on profit-taking. Then buy. With attractive dividends for the next few years, National Power looks attractive, even if it does not repeat last year's 70 per cent surge in value.

Argyll, the Safeway stores group, was hammered last year, its shares collapsing by 43 per cent - the worst performing of all the big food retailers.

Bill Myers of Yamaichi reckons the worst is over. Argyll's operating profits growth is stronger than Tesco's or Sainsbury's. Its information systems are cruder, so there is more scope for efficiency gains. The Safeway format is less exposed to the discounters. And the gearing is a comfortable 12 per cent.

Food retailers remain the pariahs of the stock market, but Argyll will do better than most in any re-rating. Profits before tax of pounds 384m for the current year put it on an undemanding multiple of 12.6. Buy (at 301p) for the long term.

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