City talk: Paper round promises fat profits

HOW much further can T&S Stores go, with its newsagents, tobacconists specialising in cut- price fags, and sweetshops? Still a low-profile business, the company's growth has been accompanied by little fanfare. Its latest deal is no exception.

Last week, it paid pounds 10.1m to buy Paper Chain, which owns 79 newsagents and 30 convenience stores in East Anglia. T&S can make the assets sweat and should be able to extract better margins.

Yet the shares, at 184p, are on a conservative p/e of 12.6 times last year's pounds 13.8m profit, and only 11.5 times the forecast figures of pounds 15.3m pre-tax profit in 1995. A yield of 4.4 per cent offers good support, and if you want a group focused on growth that has yet to lose its step, this is good a bet as any. Buy.

DESPITE a successful flotation after the traumatic British & Commonwealth collapse, life has not been a bed of roses for money markets broker Exco (110p). Profits warnings, and weak bond and foreign exchange markets have conspired to leave it looking distinctly shop-soiled.

The markets it is in are complex beasts, and there is little private investors can do to gain a feel for them. However, new financial powerhouse SBC Warburg has produced a circular recommending the shares as a buy. The broker is confident Exco's pounds 15m cost-cutting regime can produce strong earnings growth next year, even if business fails to pick up.

Pre-tax profits could fall to pounds 18m this year, from pounds 43.5m in 1994. But analyst Tony Cummings predicts a strong rebound from this nadir. Sales of pounds 205.5m from continuing operations in 1996 will be almost unchanged on an estimated pounds 203m this year. But pre-tax profits can hit pounds 25m next year. If you feel a business where money is lost as quickly as it is made is for you, the shares are a buy.

THE diversity of businesses setting up on AIM, the market for fledgling and high-risk ventures, reflects well on its success to date. Latest to list is Flomerics, a supplier of software for predicting fluid flow and heat transfer. Set up in 1988, its customers include IBM, DEC, Intel, Apple, AT&T and GEC.

Another feature to appeal to the hard-headed investor is the report and accounts. Printed on cheap paper, with the sparest of design input - accountants KPMG will be disappointed with the reproduction of their logo - the cut- price approach confirms what AIM can be about.

It also suggests Flomeric has a tight grip on costs. Sales are growing rapidly, and jumped from pounds 2.32m in 1993 to pounds 3.1m last year, when it made net pre-tax profits of pounds 407,000. Profits next year could be a little lower, the directors forecast. With a senior figure from Logica on board, management should know its onions. The company raised pounds 561,827 at the placing price of 130p but the shares have raced ahead to 205p. Still worth a punt.

TIME to take stock in British Biotech after its extraordinary rise on the news from its Marimastat cancer drug trials. The shares, up 100 per cent to 1,528p by Friday over the past two weeks, have been the subject of of feverish buying.

But as analyst Peter Laing of Salomon Brothers points out, the rise in the share price equates only to a likelihood of Marimastat coming to market of no more than 40 per cent, up from 20 per cent That still leaves a 60 per cent probability the product will fail at some point in the years of clinical trials still to come. You have been warned.

AFTER a plunge in the shares on a profits warning in early November, motor dealer Evans Halshaw is tackling some of its problem areas. Profits, likely to be stagnant this year, have suffered from a decline in purchases, coupled with overproduction by manufacturers.

This week, news of a new chief executive, Alan Smith, who joins from Boddington Group, and a financing deal with the American General Electric Capital Fleet Services buoyed the shares, at 287p. But until there is confirmation that management is winning, there is better value elsewhere in the sector.

THE information superhighway is proving a fickle beast. A year ago, shares such as Reed International and Pearson were the darlings of the stock market, hailed as pioneers of this brave new medium. Investors would grow rich on management vision and foresight. That belief took an abrupt knock this week, as news from the US showed that university spending on journals was set to plummet as the information became available over the Net at far lower cost.

Shares in Reed, a big academic publisher, shed 46 to 999p, before succumbing to further profit taking on Friday, closing at 978p. The message is clear. Uncertainty will prevail for years to come before the winners and losers emerge. Until then, ignore the touted attractions of such forays into the exciting world of the Net.