Alliance & Leicester not worth holding except for a takeover bid

Big Yellow is no place to lock up your cash; Legislation on safety needles fails to lift NMT

Alliance & Leicester could get taken over any day now.

Alliance & Leicester could get taken over any day now.

Legislation that shielded the old building society from hostile bidders expired late last month, on the fifth anniversary of its flotation. That will put pressure on the management – particularly the chairman John Windeler and his soon to be promoted finance director, Richard Pym – to give serious consideration to approaches from a queue of suitors, headed by Abbey National, but also including National Australia Bank, Lloyds TSB and Barclays. Or so the theory goes.

In truth, such a marriage is not as likely as the market seems to think. Abbey and NAB are tied up with internal problems, while the other pair have international, rather than domestic, ambitions – and the Competition Commission is always on hand to put the kibosh on consolidation.

So what happens if A&L continues is spinsterish existence?

It's not a particularly ravishing investment proposition, if news from its annual shareholder meeting – relayed to the City yesterday – is anything to go by. The bank said that gross mortgage lending grew at 7 per cent in the first quarter, over the same period in 2001, in a market as a whole that grew 37 per cent. That is a significant loss of share by any standards. A&L's credit card lending was up 8 per cent in a market that probably grew in double figures. The group said revenue growth was more than 5.1 per cent in the quarter, giving it a good head start on its target of 4 per cent for the full-year. But investors will recall that the annual revenue growth target was set at 6 per cent less than a year ago, only to be the subject of an embarrassing volte-face late last year.

So while it looks as though A&L could very well meet its targets this year – an outcome that very few in the City were predicting a few months ago – it is largely down to the astounding willingness of the consumer to load themselves up with short-term debt and to pursue mortgage deals on eye-poppingly expensive houses. None of that is forecast to continue at the current rate.

A&L is right to reject business that bolsters its market share at the expense of shareholder value. And it is doing laudably in making cost-savings throughout the business. It also has a handy dividend yield of more than 4 per cent.

But its ambitions are modest while its shares are priced at an immodest premium to the rest of the banking sector. Down 5p to 932p, they trade on 14 times next year's earnings, compared to an average of less than 13. A takeover by Abbey National would yield the most obvious cost savings, but even it would find it hard to justify paying £10-a-share. The downside, if a bid is not forthcoming, is too great to make A&L worth the risk. Cautious investors should sell.

Big Yellow is no place to lock up your cash

Moving house? Flat too small? Then you're likely to need somewhere to store your clutter. Somewhere like Big Yellow, which provides you with secure space to stash your worldly goods for a monthly fee.

Nicholas Vetch, Big Yellow's renowned chief executive, is banking that the British appetite for self storage could mirror that in the US, where there are more than 30,000 large warehouses compared with just a few hundred in the UK.

Big Yellow floated on AIM in 2000 with the goal of opening 50 warehouses – which are big and yellow – by 2003. Yesterday's full-year results find the group half way through a roll-out that has proved more testing than initially hoped. While the company trumpets its strategy of locating warehouses prominently on main roads, local councils find the huge yellow boxes more of an eyesore than eye-catching and are reluctant to grant permission. So acceptable sites in the South-east, its target market, are few and far between and the group has pushed back its roll-out completion date to 2004.

The group has 20 stores open, with a further 11 on the way, including one in Paris. Quarter-on-quarter figures show that it is gathering momentum, with customers and occupied space both up by 19 per cent. But losses for the 12 months to 31 March widened to £2.3m from £1.8m on expansion costs and Cazenove, the company's broker, is not forecasting a profit until 2004.

Analysts expect Mr Vetch to repeat the success he had with his previous venture, Edge Properties, a retail warehouse specialist that he built from scratch and sold on for £142m. Indeed, Mr Vetch originally hoped that by now Big Yellow would have created an attractive enough UK footprint to entice a US buyer. But he will almost certainly have to wait until the business is profitable.

To satisfy its bevy of blue- chip investors, Big Yellow intends to move to the main market next month, which should increase liquidity. Meanwhile, smaller shareholders risk getting bored while the company edges towards profitability. There seems little to move the stock (up 3p to 106p) in the next 12 months. Avoid.

Legislation on safety needles fails to lift NMT

There are many investors who suffer from needlestick injury. This is the stabbing pain felt when looking at the share price of a medical devices company which has struggled to develop, make and market safety syringes with retractable needles. They attracted lots of hype at the height of the biotech boom, but have proved pretty sick investments. NMT has proved sickest of all.

NMT's retractable syringe was delayed in development and then again by manufacturing problems. It finally began selling the product only to find too many were faulty. Then the sales came through much more slowly than anticipated and the company had to be bailed out by a £24.2m fundraising last Christmas.

And still the sales are disappointing. The legislation that was supposed to turn safety syringes into a mass market product is failing to deliver, NMT said yesterday. Hospitals are required to consider buying safety syringes, but there is little enforcement of the new law.

It is the second excuse in as many results statements. Meanwhile, the company has a cash burn of more than £10m a year and will soon get through its cash pile. It lost £13.3m in 2001, compared to £13.2m the previous year.

Sure, it won't take much to turn the shares around and at 3.25p they value the company at just the level of its cash. A marketing deal in the US would help. There were also hints yesterday of a big deal to supply a global drug company.

But it is still not the time to put your trust in NMT.