City File: Postpone venture into 3i

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The Independent Online
AVOID shares in 3i, the pounds 1.5bn venture capital group, when dealings begin tomorrow. Dealers expect them to start at a 3p to 4p premium over the flotation price of 272p, but they are likely to be under the cloud formed by several million exercisable share options held by present and former employees.

The group is unrivalled as the leading specialist provider of investment capital to unquoted businesses in the UK. In the longer run it will be one of the best ways of riding the fortunes of small to medium-sized companies. But the shares should offer better value in a few months.

A FEW advertising chairmen are sane as well as creative. One of them is David Abbott, chairman of Abbott Mead Vickers, which last week bought Redwood, the contract publisher, for pounds 2.85m plus performance payments which could take it right up to pounds 12m.

This adds to the attractions of Abbott shares, held back by flat profits resulting from heavy investment in its design subsidiary - which, however, is already showing positive results. At 675p, a tenth below their high for the year, the shares' attractions are based on AMV's continuing capacity to acquire new business (latest is the pounds 50m BT account) and a solid record, all given spice by the 25 per cent stake held by the American giant, Omnicom. A likely bidder sooner rather than later.

WITH training in fashion and recruiting on the increase, now is a good time to pick the star performer in the sector. Cue for brokers Henderson Crosthwaite, to suggest Corporate Services, one of the largest 'human resources' groups in the country, which the brokers are recommending for its 'pro-active sales approach. . . and tight controls'.

CS has recently picked up a couple of acquisitions, but the rights issue required to fund them (and strengthen the balance sheet) has held the share price down at 51p. The brokers reckon that profits could soar from pounds 0.9m in 1993 to pounds 5.6m in 1995, putting the shares on a p/e of less than six.

BURMAH CASTROL has been riding high over the past two years, up from 450p to 845p, and outperforming the market by a handsome 20 per cent over the past six months. By now they are on their highest p/e relative to the market in more than 10 years.

The main influence has been falling crude oil prices, impacting favourably on margins in the Castrol lubricants business. Despite optimism generated by a property sale in Singapore - giving a pounds 40m profit - Nomura is gloomy, citing rising crude prices and an earnings outlook no better than the market and incompatible with Burmah's premium rating. Better to switch into the lower-rated BP, with further results still to come from its aggressive restructuring and cost-cutting programme.

IN DREARY markets, shares do not react as positively as they should to good results. And few came better last week than the 42 per cent rise in pre-tax profits from packaging group Law & Bonar. L&B is clearly well-placed to take further advantage of the economic upturn in Europe, where profits - mostly British - rose 37 per cent and in the US, where results were helped by cost-cutting and rationalisation. Bell Lawrie White, joint broker to L&B, has raised pre-tax profit forecasts for the year by pounds 2.5m to pounds 41m - which puts the shares, at 412p, on a mere 15 times earnings for the year.

VOLEX is a household name within its specialised sector, data and power cable assemblies. But it is little-known to the investment communuity. Hence, argues broker Credit Lyonnais Laing, rather neglected. Yet its profits record is steadily impressive and its future bright, as Volex is one of the few companies in a large but fragmented sector able to profit from the trend towards centralised purchasing and just-in-time delivery. A solid buy at 398p, well below the 480p reached earlier this year.

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