City File: Keep the door open for House of Fraser shares

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The Independent Online
THE price-setting told the story. House of Fraser is coming to the market at a mere 180p, 20p below the hoped-for 200p, despite an advertising campaign worthy of Sid as well as offers to every holder of a House of Fraser credit card.

Even after the price cut the institutions, which are taking 75 per cent of the shares in a placing, were pretty lukewarm. This is not surprising. In the short to medium term, as John Richards of NatWest Securities points out, they are worried that the stores' recovery will not run much ahead of the prevailing economic situation.

Longer-term however, the demographics are on the group's side, as the older, well-heeled population, who patronise department stores, grows. The government's new policy of discouraging out-of-town shopping centres will help, as will the fact that the group's stores are freehold. But that's no reason for rushing to buy the shares at around their opening price.

THE mighty Pru is unlikely to match its rival Legal & General, which pleased the market last week with a 50 per cent jump in profits. Nevertheless, David Nisbet of NatWest Securities is forecasting a pounds 130m jump to pounds 535m in the Pru's pretax profits, due on Tuesday, thanks largely to a major turnround in general insurance business. The firm hand of the chairman, Mick Newmarch, has ensured that the men from the Pru have not oversold their products, so the company will benefit from any tightening of the rules surrounding life assurance sales techniques. The Pru's shares moved only narrowly between 300 and 370p during the boom, and remain good value at 332p, 18p up on the week.

SHAREHOLDERS in Harmony Leisure endured an extreme version of the disasters that afflicted all trendy-pub businesses, seeing their shares tumble from 56p in 1989 to a mere 3.7p three years later. Since new investors, led by Lewis Davis, reversed their property interests into the group last year and renamed it the Harmony Property Group, they have done better. Mr Davis showed his mettle last week by selling at a profit one of the batch of properties bought recently from John Ritblat's British Land. There could be more deals to come. Meanwhile the shares, at a mere 9p, have not yet caught up with the transformation - and the opportunities in an improving property market.

THE revival in the fortunes of Lucas Industries has begun even before George Simpson arrives to work the same magic which brought Rover into profit for the first time in a couple of decades. Greatly increased efficiency over the past few years, world leadership in a number of specialist products in both the aircraft and automotive fields, and a continuing trend to diesel engines will be reflected tomorrow when interim profits will jump five-fold to around pounds 25m. The combination of recovery in the motor business and George Simpson's influence could result in continuing buoyancy in the share price, which has remained at around 220p.

IN DODGY times new issues can offer better value than when optimism is in the air. Take Inspec for instance. Until 18 months ago it was BP's speciality high-value chemicals business. Bought out for pounds 40m, it is coming to market with a pounds 136m price tag under the chairmanship of John Hollowood, a 30- year veteran of the business who built up Fine Organics before he sold it to Laporte. At 160p Inspec's shares will be on 18 times 1993 profits, a 20 per cent discount as against similar companies with less brilliant prospects. Worth applying for.

THE MARKET is in unforgiving mood. Even when 'Mr 20 per cent' - Clive Thompson of Rentokil, who has promised that level of growth more or less for ever - delivered the goods, the shares fell 15p to 241p in two days. A market value of more than pounds 2bn for a company with sales pounds 600m makes the shares highly vulnerable. The problem is not only the underlying growth rate in its basic business, but also how much more can be squeezed out of Securiguard, bought last year for an expensive-looking pounds 76m. Moreover the group's majority Danish shareholder, which sold 40 million shares last October, will be free to sell more this autumn. One to avoid.

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