A convenient excuse to stock up on Geest

Alvis; Entertainment Rights  
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The Independent Online

You are a busy person. You don't have time to go shopping for fresh ingredients for your dinner, let alone time to actually cook a whole meal from scratch. Convenience is crucial, and that means convenience food, probably snatched from the supermarket on the way home. It means pre-assembled salads (of course, you are health-conscious) and fresh, easy-to-cook meals.

It means you are probably eating Geest's products. The company makes own-brand convenience foods for the UK's major supermarkets, with more than 2,000 different meals, salads and snacks on the shelves. The growth of the convenience food market has been phenomenal, and it shows no sign of peaking. Analysts estimate it could be worth £3.5bn a year.

So Geest has been a great growth stock, doubling in the last three years. And results yesterday showed that sales were up 17 per cent to £664m, with pre-tax profits up 11 per cent to £40.7m. The company gobbled up additional market share in bagged salads, prepared fruit and pizzas, where it makes Pizza Express-branded pizzas for sale at Sainsbury's.

The speed of growth has come as something of a surprise to management, which has found itself struggling to find factory capacity, and even had to abandon one contract to supply sauces to Waitrose. This year will bring big investment in factories, which the company's new scale means it can now semi-automate. Of course, this could make the group – which is highly devolved into dozens of smaller businesses – prone to hiccups. But the management is cautious and there have been no major disappointments in recent times.

Even European expansion is being approached cautiously, even though the growth in the tiny business it does do overseas was impressive last year. The company has examined and rejected many acquisition targets. Supermarket opening hours, working conditions and wholesale distribution are all very different to the UK, and make the Continent relatively unappealing for now. Some investors chose to cash in their recent profits yesterday, sending the stock down 21.5p to 727.5p. That means it trades on a reasonable 16 times Williams de Broe's forecast of 2002 earnings. Even after their stellar performance, the shares are well worth holding.


Alvis makes toys for our boys: tanks, light armoured vehicles, battlefield troop carriers and the like. In recent years it has acquired GKN's tanks business and is now talking to Rolls-Royce with a view to buying its Vickers Defence Systems, makers of the Challenger tank. That will bring production of all fighting land vehicles under one roof in the UK.

There was no news on the talks yesterday, when Alvis reported on 2001. These showed pre-tax profit up from £12.8m to £28.2m, just about flat after the one-off profits from disposals are discounted. It is not a bad result for what was always going to be a trough year for turnover, which fell 27 per cent to £149.4m. Its biggest division completed one delivery of the CV90 tank to Norway in late 2000, but is only this year starting shipments to Switzerland and Finland.

So while the money comes through in lumps, the future is easy to predict – and looking up. The order book was £562.6m at the end of 2001, high enough to justify Alvis's current share price, which dipped 3p to 145p, but reflects the prospects for a sales recovery. The house broker, Charterhouse Securities, is already predicting 27 per cent earnings growth this year and 50 per cent the year after.

There is further potential upside from sales of the MRAV (multi-role armoured vehicle), a project instigated by the UK and German governments. And while the British Army has spent a lot of money in recent years on tanks, with troops in high-profile new roles around the world, the Government is now likely to make efforts to replace its old fleet of lighter battlefield vehicles. GKN's 29 per cent stake could attract a strategic predator, limiting the downside for the shares. Buy.

Entertainment Rights

There's a big jamboree in Cannes next month, MIPTV 2002, when Entertainment Rights will be glad-handing television industry players in an effort to sell some of its library of 1,000 hours of children's television programming.

The group has bought up rights to a range of characters, from the old stager Postman Pat to Clifford the Big Red Dog, one of the most-watched cartoons in the United States. Now it is exploiting them in a frenzy of dealmaking. Basil Brush, for instance, is set to make his return to BBC1 this year, while Caspar the Friendly Ghost is currently appearing on the back of Hong Kong taxis.

The broad portfolio means Entertainment Rights should avoid dangers which have beset rivals such as Just Group, which are too reliant on one character. In 2001, Entertainment Rights' profits jumped from £71m to £202m and the new year has started well.

With the shares of its more established rival HiT Entertainment trading on 26 times this year's earnings, Entertainment Rights, on 16 times at yesterday's 12.5p, deserves to trade higher.