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Coal is digging deep to keep face

THEN there were three. The demise of Coal Investments has left three quoted miners in the British coal industry, all of whose prospects have been enhanced by the exit of one of the two majors. The remarkable success of the other big player, RJB Mining, has been well highlighted, and most of the good news is probably already on the price.

However, two other companies, NSM and Rackwood, should not be overlooked. NSM (40p), valued at pounds 18m by the Stock Market, has many positive qualities to its name. But a more interesting investment, and a purer play on the UK coal scene is its smaller colleague, Rackwood Minerals. An opencast miner, at 55p, the company is worth pounds 8m. Good 1994 figures were capped by excellent interim results. These were probably something of a one-off, but even so, the company is on-course to up output from current levels of 350,000 tonnes a year, to 475,000 tonnes by the end of this year. Management have set a target of one million tonnes, and judging by their track record in recent times, there is no real reason to question this aim. Buy.

BRITISH Steel's success has earned it a place in any management textbook, and the achievement has been reflected in its share price over the last few years.

However, the good times look as if they may be over. For a start, steel prices have been on the wane, with 3-5 per cent cuts in construction steel already announced. Curiously, the shares have responded in the opposite direction, with a sudden and unexpected surge in the last week, to 197.5p.

NatWest Securities now sees this as a chance to take profits. Even a 10 per cent fall in steel prices would see operating profits from carbon steel completely wiped out. The company remains a cyclical play, and is now approaching the end of its current cycle.

PROBLEMS continue at Babcock International (129p), the engineering-to- materials handling group. Despite sales of pounds 755m in 1995, pre-tax profits amounted to a miserly pounds 7.8m, and are set to head south this year, on other problems.

Redundancies in Germany have had be postponed in order to comply with local employment laws, while the process division failed to win the anticipated orders from Saudi Arabia. It now looks as if the company will fail to break even this year. Avoid.

WE highlighted Peptide Therapeutics ahead of its flotation in November, since when the shares, after initial flurries took them to a high of 250p, have slid back to 199p. Nevertheless, there are promising signs that the company's strategy can pay off. With pounds 26m in the kitty, it has four years to work towards developing its products.

Its strategy is to buy in compounds, mainly peptides, which are sequences of amino acids, and the building blocks of proteins. Two allergy vaccines are already in Phase II trials, while it has a promising compound, for rheumatoid arthritis, in its Phase I trials. It also has a potential meningitis B vaccine which is still at the research stage. Peptide will continue to burn up cash over the next three years or so, but nevertheless the shares are a buy at current levels.

THE City seems to have decided that results from Williams Holdings a fortnight ago are a sell, judging by the shares. From 342p at the start of March, they have been on the slide ever since, and now stand at 319p.

But brokers UBS and Kleinwort Benson both view this as a buying opportunity. The fire protection, security and building products group saw sales up 14.7 per cent to pounds 1,598.5m, with pre-tax profit up the same to pounds 228.3m.

Disappointingly, earnings per share could rise only 2.8 per cent to 22.3p. But gearing, at 18.7 per cent, is low, and the business continues to spin off cash. Dividend growth looks assured, and the shares trade at a mere 13.4 times Kleinwort's forecast earnings of pounds 250m for 1996. That leaves the shares on a gross yield of 5.5 per cent. Buy for the income, and future growth.

WATCH shares in Gowrings (88p), which is barely changed since September, after the most recent outbreak of mad cow media frenzy. The car dealer has been expanding rapidly into the fast-food market, with a growing number of Burger King franchises on its books. The latest concerns can't be good for business. Sell.