City Talk: Lancia Trust flatters to deceive

Click to follow
The Independent Online
Lancia Trust has excited shareholders with a remarkable 14-fold rise in its share price since Andrew Regan and associates took over the renamed New Guernsey Securities Trust in a pounds 4m cash offer last September. Now we hear rumours that Mr Regan - who bought Hobson Foods for pounds 100m before selling it for pounds 125m 18 months later - is close to embarking on the flurry of deals his followers have been expecting. But the shares, at pounds 16.62, are trading on pipe dreams and are best avoided.

Stockbroker UBS is keen on the prospects for smaller companies in 1997, after a relatively subdued performance in 1996, compared to blue-chip and medium-cap shares. It says smaller companies are trading at a 5 per cent discount to the market, but profits should surge faster than the market as a whole: 16 per cent, versus 8 per cent. This reflects their higher exposure to the UK economy, and a lower exposure to the impact of a strong pound and sluggish overseas economies.

As a caveat, smaller companies which are big exporters may not do so well for those very same reasons. Based on these criteria, it has chosen 10 companies it believes are best placed to outperform. They are: Anite; Azlan; Capita Group; Eurodis Electron; Games Workshop; Jarvis Hotels; McCarthy & Stone; P&P; Redrow, and SIG.

Another blow to the ailing market for CD-Rom developers last week when Epic Multimedia, which only obtained a quotation in April, saw its shares more than halve in value. They now stand at 21p. The company had lost pounds 921,000 by the halfway stage and cut 70 out of its 150-strong workforce.

By contrast, Eidos, a rival developer, seems to be on a roll. Last week saw the first publication by a US stockbroker of a research note on the company, now with a quote on Nasdaq, rating the shares a buy. Volpe, Welty says the success of Eidos's Tomb Raider game, coupled with an astute acquisition strategy, makes the shares attractive. The broker estimates revenues will rise from pounds 3.6m in 1996 to pounds 65.9m in 1997 and pounds 122m in 1998. Picking companies in this still relatively new market requires care, but at 937.5p, Eidos could deliver.

A go-between or middle man always runs the risk of being squeezed, by one side or the other. Worse, people can decide to cut you out entirely and then you're completely scuppered. This is the fate now hitting insurance brokers, where commission rates have fallen to wafer-thin levels. In the jargon of financial markets, it is known as disintermediation. Companies, rather than going to insurance brokers to obtain quotes, have been going directly to suppliers of insurance, or have set up their own captive insurance operations to fulfil requirements.

Willis Corroon (142p) is one such firm whose recent performance has been uncompelling. Although pre-tax profit is likely to be up from the pounds 50m recorded in 1995, to around pounds 85m, growth in sales will be minimal. In other words, the only advances are coming from improvements on the cost side - a limited route for much further growth. The shares remain a sell.

The complex scheme unveiled by Yorkshire Water (736.5p) to return pounds 145m to shareholders may have had the City dancing. But the message it gives to the regulator - and any incoming Labour government - is of an industry still flooded with cash and with no sensible idea of what to do with the money. The fact that benefits to the customer at Yorkshire and most other water companies are far less easy to spot only raises the odds of some sort of retribution from Labour.

The regulator, too, must be busy calculating if the current regime achieves the right balance between the interests of shareholders and consumers. Either way, the sector as a whole looks increasingly a sell, the closer the election comes.

Comments