Brit Energy – one to store away

British Energy; Pilkington; Clinton Cards
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The Independent Online

British Energy looks like a winner in the generation game. In particular, it appears to have mastered the fiendishly complicated rules of the new electricity trading arrangements (Neta), by which UK wholesale energy prices are now set.

Despite the uncertainty when Neta was introduced in March, the prices that generators are getting for their power have remained broadly flat. For the moment, that's horrible news, because prices are at historically low levels and there is little sign of an upturn. But the winners from Neta in the long run will be those generators with the flexibility to ramp up or run down generating capacity as necessary – British Energy's Eggborough coal-fired plant can do that – and those that are able to predict with certainty their future output, which is easy with British Energy's core nuclear plants.

The group's trading update yesterday promised that interim figures will meet expectations, despite the miserable UK market. It has been paring costs and gently increasing output, and this should make up for the disappointing prices for its pre-sold electricity.

Long-term investors have been attracted by the group's success earlier this year in tying up a deal to run two giant nuclear complexes in Canada, which have dramatically increased British Energy's North American exposure and will, when some vital repairs have been completed, transform the group into a properly rounded international generator.

Analysts are divided over whether this financial year will leave British Energy sitting on a pre-tax loss. US energy prices are depressed, too, but should turn around when likely capacity reductions in the south are announced later in the year and then when industrial activity finally grows again.

If they are being honest, the investment professionals admit that British Energy shares – up 4.5p to 292.5p on yesterday's mixed news – do not often move with much relation to the fundamentals. Rather, it is used as a "trading stock", with momentum investors piling in when it looks to be ticking up, piling out again when the rally looks like stalling. That makes it a risky play for the private punter, but an expected return to dividend growth next year should help to compensate for the medium term fluctuations. Buy to tuck away.

Pilkington

The glass manufacturer Pilkington, maker of a new double glazing that cleans itself, has sacked 13,000 employees since 1997 and still has a couple of US factories to shut down this year before it finally closes the curtains on its Step Change restructuring programme.

Pilkington's trading update yesterday showed that Step Change had turned an increased profit from its car windscreen business, despite a 6 per cent fall in demand from a US car industry that is deep in recession. Its replacement glass business – representing half Pilkington's turnover – is not affected by the economic cycle and continues to make some impressive progress.

The terrorist attacks of 11 September, which already look to have hit US consumer confidence, will certainly be another blow to the car industry, and worries over demand in a slower economic climate do seem to have been justified. Other markets, such as Mexico, look to have followed the US into slowdown. Yet Pilkington shares, up 6p to 103p yesterday, sit on a lowly 9 times forecast earnings for this year, and are discounting plenty of bad news.

Interim results in a month's time will be in line with market forecasts, the group promised yesterday, and that is no mean feat at the moment. Pilkington also promises to reveal its initial thoughts on the size of the market for that self-cleaning glass. Both events could trigger a return to share price growth, but potential investors would be advised to wait for confirmation.

Clinton Cards

The beleaguered investors in Clinton Cards have long had their "Happy Retirement" gifts ready for posting to chairman and founder Don Lewin. But he's still there, and instead they were sending grudging "Congratulations" cards yesterday, after a forecast-beating set of interim figures.

Grudging, because the reduced losses of £138,000, from £497,000 last time, and the 9.9 per cent growth in like-for-like sales were mainly the result of tackling previous over-stocking. Grudging, too, since Clinton Lewin, the son who gave the group its name, is managing director and remains heir apparent despite the City's distaste for family firms.

There are signs that long-standing problems are being tackled, though. Temporary "calendar shops" to be opened for the Christmas period show flashes of original thinking that hold out the hope of more structured diversification. A handy new IT system is also up and running, planning regional stocking policies. On a forward price-earnings ratio of 6, the stock is patently undervalued, and is due a re-rating.

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