City Talk: You buy yours back, I'll buy mine

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IT HAS been raining share buy-backs in the City for the past year, and there seems to be no let-up in sight. What had been viewed as a panacea for investors and companies has become a must-have accessory for the fashionable finance director.

According to figures compiled by Credit Suisse First Boston, UK companies last year announced buy-backs worth pounds 5bn. Already this year, companies have announced buy-backs worth pounds 1.47bn, and CSFB estimates that the figure will hit pounds 10bn for 1998, more than double the 1997 level.

Vickers will hand back some of its proceeds from the sale of Rolls-Royce, and so will WH Smith from the sale of its Waterstone's book shop chain.

But the case for the defence has yet to be proven in any absolute sense. The simple truth - that a buy-back for a company with surplus cash will boost earnings per share and dividends - remains correct in most instances. And the old saw - that it is a sign of a weak management which lacks the vision to invest in anything more productive - is not entirely fair.

It is difficult for companies to continue finding worthwhile projects in which to reinvest surplus cash. At least handing it back to investors smacks of realism. In a low-inflation environment, with interest rates set to remain low, it may be the wisest course of action.

But alarm bells must start ringing when it becomes a popular pastime indulged in by any and every company with some cash to spare. It is hard to believe they are all in the same boat. For a start, good investment opportunities will emerge. The companies prepared to take a longer- term view will be better placed to benefit from deals than those with stretched balance sheets.

Not much has been heard from Victory Corporation since it was floated on AIM at 58p in October 1996, and the shares have since fallen to 31p. For those of you who have forgotten, this is the mighty Virgin brand's entry into the retail cosmetics and clothing markets. Virgin owns 49 per cent, with a quarter in the hands of Rory McCarthy and his family, the businessman who first approached Richard Branson with the concept in 1995. The rest is owned by institutions.

Victory has bought in experienced management to run the two chains - Virgin Vie, the cosmetics arm, and Virgin Clothing - and the early signs are promising. Four Virgin Vie stores have been opened and another 19 are planned for 1998-99. Clothing remains a wholesale operation, concentrating on up-market casualwear.

Analyst Nick Bubb at Societe Generale is aware that profits for start- up businesses are some way off in the future. He estimates that the group may earn its first profit in 2001, when pounds 10m of pre-tax could be made. On that basis, he reckons the shares are worth closer to 65p as a long- term buy.

On Wednesday Alfred McAlpine, the housebuilder and construction concern, announces preliminares for 1997. Given the slew of housebuilders reporting last week, it will be interesting to see how McAlpine scores.

Kevin Cammack at Merrill Lynch is forecasting profits of pounds 20.2m, up from pounds 9.4m in 1996. That should include a 28-week contribution from Raine, the business McAlpine paid pounds 38m for in June. The housebuilding side looks to be doing well, and the shares have been on a bit of a run recently.