CITY TALK : BAe can withstand the turbulence
Sunday 22 December 1996
UNITED BISCUITS has been friendless for a long time; its shares have consistently underperformed for the past seven years. So long-suffering shareholders welcomed news of the completion of a restructuring at its Ross Young frozen foods division, with the pounds 44m sale of Ross Vegetables Products last week. The shares ended at 210p, up 13p from when the deal was announced. Although this rids the company of another commodity business in a severely competitive market, there is still little incentive to buy. The disposal will also require a write-off of pounds 51m, while the main biscuits business remains sluggish. And the much-mooted bid is nowhere to be seen. Avoid.
VOLEX (460p) is a cable manufacturer which specialises in the techie end of the market, turning out cabling for computer and telecom systems. The Warrington-based business has a good track record, but the shares have been obstinately stuck in a trading range of 400p to 470p for the past three years. However, the business is moving ahead with plans to build satellite manufacturing plants close to its main customers. A new 32,000 sq ft factory in San Diego, California, will open early in the new year. At the interim stage, profits were ahead a healthy 22.6 per cent. At around 13.4 times prospective 1997 earnings, the shares look good value. Buy.
BORDER TELEVISION may be one of the tots of the sector - annual sales are a mere pounds 12.6m. But interim figures showed earnings per share well ahead at 9p, from 6.5p the previous year. With strong cash flow from TV, expansion into radio, and plenty of cash on the balance sheet, the company is well placed. Yet despite these attributes, the shares remain cheap compared to the rest of the sector. Continuing consolidation suggests Border (at 312.5p) may well make a tasty morsel for one of the larger media groups. Buy.
BSKYB has overshadowed its smaller rival Flextech (656.5p), yet the latter is now the second- largest provider of cable and satellite programming in the UK after its mammoth competitor. Analysts at Merrill Lynch have begun coverage of the shares - still loss-making this year, they estimate, but due to break into profit in 1997 with pounds 4m pre-tax. Flextech has interests or rights in 15 channels or channel packages, but its greatest coup was securing a joint venture with the BBC for the launch of BBC Digital next autumn. Expect further exciting developments as pay day edges nearer.
ANALYSTS have trimmed back their estimates at MFI (189.5p), the furniture retailer, after the group turned in a strong set of interims, but not quite up to some expectations. James Capel, the stockbroker, has cut its 1997 pre-tax estimate to pounds 90.5m, from pounds 93m, and rates the shares a hold. Likewise, UBS noted the figures failed to quite match initial hopes, although it continues to rank the shares as a buy. The business itself is steaming ahead, with sales up 15.1 per cent, and pre-tax profits up 63 per cent to pounds 32.7m. One attraction has been the conversion of its 184 UK stores to the new MFI Homeworks format in the mould of a mini-Ikea - less flatpacks, more home furnishings, including wallpaper and upholstery. Partly because of the reformatting, costs are also on the up, with its Spanish foray, and the joinery business, Howdens, another drag on profits. But the shares remain at the least a firm hold, notwithstanding some election fears for interest rates and the knock-on impact on the housing market.
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