Hold Budgens in your shares basket

John Laing; Spring Group  
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The Independent Online

The supposed death of the high street, predicted since the supermarkets marched en masse to their giant out-of-town barracks, has in fact provided a nice opportunity for Budgens, one of the littler names in food retailing.

It has reinvented itself as a convenience store and mini-supermarket operator, with a speciality in fresh fruit and veg. And it is proving a healthy strategy, if half-year results yesterday are anything to go by. Turnover is up 9.4 per cent and profits jumped 13 per cent to £9.8m, thanks to a programme of store openings, refits and refurbishments.

Budgens now has 234 stores, mainly small high street supermarkets. Like-for-like sales growth since the year end, although showing a downward trend, passes muster against the giant supermarkets. The group achieved a 4 per cent increase, only a point or two behind the big boys who benefitted from the big Christmas shop and their growing sales of non-food products.

Martin Hyson, Budgens' chief executive, said the market remains competitive, but is relaxed about the threat from the likes of Tesco's Metro or Sainsbury's Local, the smaller store concepts launched with fanfare at the end of the Nineties. So far they have not trod on each other's toes, as the bigger chains are looking for urban sites, while Budgens is more comfortable as the local corner shop.

It is finding sites that will be the main drag on Budgens' growth plans. It hopes to be adding 20 stores a year, but reckons on finding only 12 to 17 in 2002. A short-term short cut is the Budgens Local concept, where the group re-brands independent traders' existing corner stores, bringing them the benefit of its distribution and sharing in the proceeds from Budgens' produce. There are 29 such franchise deals so far, and up to 50 are possible.

Rightly, the company has its fans in the City and the shares have already had a good run. At 102.5p they trade on almost 16 times this year's earnings. They are worth holding.

John Laing

John Laing is an old construction group now transforming itself into a more attractive investment. In future, the company will build houses and work on Private Finance Initiative-style projects. A trading update yesterday put the seal on the new entity.

The statement provided comfort by telling analysts that their forecasts were safe and it put what should be a final figure on the historic liabilities of the construction business.

Laing said it expects to have achieved trading profits of at least £90m for 2001. And it told investors it would incur a total loss of £117m on last year's sale of construction – made up of a £30m loss on the disposal with the rest covering liabilities from two very large, troubled projects: the Cardiff Millennium Stadium and the National Physical Laboratories.

At least this is now quantified. And the size of this provision is a good illustration of the reasons for getting out of the risky traditional construction business. From now on, the group will only undertake PFI-style projects such as road building and rail infrastructure which have more strictly limited risks for the builder.

Laing is in the process of selling its property development business, which should fetch a further £50m but it retains the housebuilding division. It also has a new man taking the helm as executive chairman next month, as Bill Forrester replaces the family stalwart Sir Martin Laing.

After 150 years as one of Britain's leading construction groups, Laing bit the bullet and has now apparently extricated itself from this activity and capped liabilities from it. Add to this last year's £73m rights issue and it emerges as a new and profitable entity from 2002 onwards (the 2001 figures, when published, will show a large loss). It is possible that Mr Forrester will preside over further surgery on what remains of the company, but it is already a much more compelling investment prospect.

Laing's share price, though, shows that the market has not fully woken up to this company's transformation. Remember, Jarvis, which carries out many of the same PFI activities, was one of the best-performing stocks of 2001. Up 8p at 158p and trading on a forward multiple of 9 times earnings, Laing shares rate as a buy.

Spring Group

It is a case of one step forward, two steps back at Spring Group. The personnel firm and specialist in the recruitment market for IT consultants proved far too enthusiastic in its acquisitions at the height of the dot.com boom and its shareholders are paying for it now.

Interims yesterday showed a pre-tax loss of £8.2m, when the costs of write-offs, redundancies and unwanted property commitments were totted up. That compares to £4.9m in the six months to October 2000.

The new management have been frantically patching up the business, and the operating results were actually okay. Three of the four divisions were in the black, most happily the biggest, IT Personnel. That represents a giant leap forward, given that the recruitment market had fallen off a cliff.

Unfortunately, it now looks as if the market had only reached a lower ledge, and it took another tumble after the end of the period. In November, most of Spring's big banking clients in the City slashed IT consultants' fees – and therefore Spring's margins – by 10 per cent. Spring shares collapsed 11p to 65.5p yesterday.

The group sits on £50m cash. It will not go bust, and may benefit as others do. But with the market still in freefall, now is no time to buy in.