City Talk: Fine factory fodder
Sunday 05 October 1997
The two have, between them, ordered sales of 30 tonnes per week, split evenly between wafer-thin ham and wafer thin chicken and turkey.
The factory, which cost pounds 4m to build, with another pounds 2m earmarked to be spent early next year, will be able to generate pounds 30m in sales when it is in full swing. Finance director Ian Blackburn is confident it will have achieved sales of pounds 20m within two years.
Tomorrow, a contingent of analysts will descend for a site visit. They are likely to be impressed by the hi-tech appearance; Perkins believes it is the most modern factory of its kind in Europe, and is keen to boast of the strict hygiene regime and controlled operating environment.
Brokers forecast a range of pre-tax profits from around pounds 27m to pounds 28m for the full year to 31 December 1997, rising to up to pounds 32m in 1998. Its recent interim results saw profit before tax surge 27 per cent to pounds 14.1m. Earnings per share were up 20 per cent over the same period to 4.8p.
Is there a gold mine under Northern Rock? The shares closed at 473p on Friday - an astonishing level given that most analysts thought 450p was the upper limit achievable. Of course this could, and perhaps very probably is, no more than a technical reaction, further provoked by market makers squeezing the stock. For that reason, it could all too easily end, if not in tears, then with some substantial declines. For the small conversion shareholders who want to lock in their gains, the answer seems clear: sell your shares now. Longer term view, the Rock is not yet a candidate for inclusion in the FTSE 100, but it may be only a matter of a year or two before that is a serious prospect. At present, the shares would need to rise to 500p, for it to warrant full blue-chip status. Tracker funds and the like, goes the argument, would then have to weigh into the shares, sending them even higher.
And finally, there is Northern Rock the takeover candidate. At pounds 2.1bn, the group would be attractive to several players looking to buy a profitable, low-cost, high-growth mortgage machine. Barclays' proposed sale of its BZW stockbroking arm would suggest one player eager to keep its eyes trained on more prosaic, but more rewarding businesses.
Still with the conversion stocks, Woolwich's shares have also reached record levels. With about pounds 600m of surplus capital floating about, the equivalent of 38p a share, shareholders can expect a mini-bonanza as the company embarks on a share buy-back operation. However, some of the excess seems destined for expanding the Italian and French operations. Is your money safe, then, with the Woolwich? Probably, but given the heady levels the shares have been trading at - a 15 per cent premium to the Abbey National - and uncertain prospects on the Continent, and the shares look over valued.
Book publisher Hodder Headline has had a rough ride from the market as a consequence of Headline's acquisition of Hodder & Stoughton in 1993. The deal may have worked out satisfactorily, if it had not been for the simultaneous de-stocking programme of its main high street customers - Smiths, Waterstones, and Dillons in 1995. Its move to escape the net book agreement worked well, but was insufficient to rescue it from a profits collapse.
So the shares have been on a downward since, although they have shown signs of an upturn recently. While some of the falls may have been justified, however, it seems the market has been unreasonably harsh. Profits this year should hit pounds 7.8m, says brokers Charterhouse Tilney. If that is so, the shares trade on an attractive forward multiple of 14.5 times earnings. Hodder Headline has always enjoyed a reputation for strong marketing, and that will feed through to higher earnings. Good long term value.
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