City Talk: Perkins gives investors something to chew on

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PERKINS FOODS was last mentioned here in October when its shares were 93p. Since then they have climbed to 133p, on growing recognition of the group's potential in frozen-to-chilled foods.

Last week, the group took another step forward when it announced the disposal of its fresh produce division for pounds 124m to a Dutch growers' collective, Greenery. Most would agree that it is a very handsome price. Perkins will hand back pounds 45m of capital to shareholders as a result.

According to stockbroker Williams de Broe, the new-look business should generate pounds 23.8m pre-tax profits in 1998 - down from pounds 28m last year. This will rise to pounds 29.7m in 1999. At present, the shares look to have a reasonable upside, trading as they are on 14.1 times this year's earnings.

Recovery stocks, especially at this stage in the cycle, are harder and harder to come by. Hay & Smith, a building and construction products and steel stockholding business, could be a contender. For the last two years it has produced truly dreadful results. Inevitably, the outcome has been a plummeting share price. Most of the problems stem from declining demand for some of its core products.

Yet beneath the grime strong signs of renewal are evident. The company has invested pounds 20m in its business over the past five years. It now has two new leading-edge technology galvanising plants in full production, with the capacity to expand to 80,000 tonnes by 2000 - potentially adding pounds 1m. There is the prospect of 10 per cent annual growth in galvanised steel, and a likely disposal of the steel stockholding division which could raise pounds 7m and halve debt.

Bearing that in mind, stockbroker Greig Middleton forecasts a recovery in pre-tax profits to pounds 3.6m this year from pounds 3.3m, and pounds 4.3m in 1999. That leaves the shares trading on 7.4 times earnings for this year. If nothing else, the stock is cheap, so the downside should be limited.

For bulls of Williams, the now out-of-fashion conglomerate where chairman Sir Nigel Rudd has been battling to revive City sentiment, the wait for a significant upward movement in the share price looks like lasting an eternity. Yet the shares are cheap compared with Hays and Rentokil in the support services sector they were admitted to last year. They trade on a 40 per cent discount, on the basis of forecast price-earnings ratios and price-to-cashflow ratios.

Why should this be so? One problem is that recent results showed a mere 3 per cent rise in pre-tax profits to pounds 118m. But there are opportunities aplenty for the group to improve its margins. For the optimists, the clear message should be: don't give up now.

United Utilities has a new chairman and chief executive to put right the unrest stirred up by the antics surrounding the departure of former chairman Sir Desmond Pitcher and chief executive Brian Staples. In have come Sir Christopher Harding and Derek Green.

Their strategy is sounder and more achievable: stick to cost savings in the core businesses, with non-core businesses offering an escape from regulatory pressure. On a net yield of 4.7 per cent, the shares look attractive.