City gives BAA profits news a muted welcome

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Improved profits and passenger growth from BAA received a muted response in the City, which was more worried about the affects of the Channel Tunnel and retail spending at the group's seven airports. BAA, which owns Heathrow and Gatwick, saw pre-tax profits in the nine months to 31 December rise 12 per cent to £328m, as passenger numbers improved by 7.4 per cent.

The group, which has a reputation for caution when forecasting, now believes final year passenger growth will be up 7 per cent on the 82 million in the previous financial year.

Sir John Egan, BAA chief executive, said passenger traffic figures reflected recovery in the worldwide economy and he expected growth to continue into 1996.

However, Selwyn Jones, analyst at Credit Lyonnais Lang, said that with passenger traffic better than expected the profits should have been better.

Retail revenue, which has grown strongly in recent years as BAA began marketing its outlets, rose to £402m, up 9.8 per cent despite disruption caused by building work.

Income from property rose by £8m to £119m, and BAA has plans to improve and expand its portfolio. Two weeks ago the group announced a rent freeze at Heathrow until 1996.

Another analyst, Alastair Gunn, at London Wall, said BAA's pre-tax performance was "sluggish", falling £2m short of his forecast of £330m.

Capital expenditure rose to £307m from £175m, reflecting the impact of an improvement programme at airport terminals, which should be completed this year, and construction of the Heathrow Express link to north London.

Mr Gunn was cautious about BAA's continuing high levels of capital expenditure which, at a projected £1.4bn in the next three years, would lead to gearing of 50 to 60 per cent. Gearing is currently 30 per cent.

With retail figures showing a slowing rate of spend per customer, potential Channel Tunnel competition emerging, and other imminent structural changes, Mr Gunn predicted some "jitters" ahead for the BAA share price, which closed down 5p at 460p.

The group could hear this week whether the Government intends to allow a third runway at Heathrow and site another at Gatwick. It is thought the Government may give permission for a second Gatwick runway to be built next century. This could pacify objectors to the proposed fifth terminal at Heathrow, who have claimed that such a building is just a Trojan Horse for a new runway.

BAA says that it needs the Heathrow terminal in order to cope with increased passenger traffic, but it does not need another runway.

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