Invensys had a good run but slide in telecoms makes it too risky

Leave Manchester United on the bench; Bus maker Henlys faces tough road ahead

Happy anniversary, Rick. The chief executive of Invensys, Rick Haythornthwaite, is today celebrating a year with the industrial conglomerate and shareholders will allow him to pop a champagne cork or two. A year ago, the stock languished at 35p but, while the market has collapsed, Invensys shares have risen some 75 per cent. Mr Haythornthwaite has sold off £1.5bn-worth of unwanted businesses, got the banks off the company's back, and set out a credible set of targets for the remaining businesses. So, cheers.

The really hard work starts now. Mr Haythornthwaite has to tame a beast of a business which, since being founded through the merger of BTR and Siebe in 1998, has seen little integration between its various divisions and which has preferred waves of lay-offs as a substitute for investment.

And the chief executive has to achieve all this against the backdrop of an industrial downturn and outright recession amongst its telecoms customers. Invensys is focusing on what do seem like attractive areas: providing devices and technology that helps industry to stop wasting expensive power and water or to improve their production efficiency. But investment spending among its customers is shaky at best and, if yesterday's purchasing managers' data from the US is correct, about to tip into a second recession.

Add to the mix the decline of the US dollar, which has fallen 8 per cent since Invensys last updated the market, and results for the past six months will be at the bottom end of analysts' expectations. Brokers were yesterday poised to slice full-year earnings forecasts by as much as 10 per cent.

So the shares were down 7 per cent to 60.75p on the day, and yet still look on the expensive side on a multiple of sales, compared to healthier rivals. Mr Haythornthwaite is well liked and few seem to doubt he can hit the ambitious set of targets he has set for the business in 2006. But even with major acquisitions and restructuring off the agenda, and the focus on conserving cash, he has too small a margin of error to be comfortable amid the gathering economic storm. Avoid.

Leave Manchester United on the bench

Manchester United's increasingly inconsistent form has not gone unnoticed by the stock market. Shares in the club have spent the last two months languishing around the £1 level and show few signs of scoring any substantial increase. If anything, the stock looks to have a ropey season in store.

Even though the shares have halved in the last 18 months, the stock is still trading on a whopping forward multiple of around 31 times its broker's forecast of earnings this year. And that is hard to understand when players' pay packets are sky-high and still soaring – and when their dominance of UK football is no longer unchallenged. Total wages at United grew 40 per cent to £70m in the year to June – amounting to nearly 50 per cent of group turnover. With new signings including Rio Ferdinand and 13 recent player contract renewals, including David Beckham's, that's not a bill that's going down.

United booked a £17.4m profit this year from selling off players including Andy Cole and Dwight Yorke, and yesterday's results were in line with forecasts. Pre-tax profits came in at £32.3m, up from £21.8m, on sales up 13 per cent at £146.1m.

Match-day turnover was up 9 per cent at £56.3m with games at Old Trafford attended by an average of 67,160, up from 67,100 last year. And media-related cash was up, too, by 66 per cent at £51.9m. That reflected the higher value of television deals and the club's success in reaching the semi-final of the UEFA Champions League.

United's broker, Merrill Lynch, is currently forecasting pre-tax profits of around £13m for the current year, translating to earnings of around 3.4p a share. So the shares, up 5.25p at 105p last night, are on a forward multiple that simply can't be justified now that media rights appear to have peaked. The next Premiership TV deal is likely to be less lucrative than the last, but players' wages are yet to reflect the downturn. Shareholders are going to lose out until the contradiction between the two is resolved.

Bus maker Henlys faces tough road ahead

It's tough on the buses at the moment, at least for companies such as Henlys which operate mainly in the US. State education authorities are buying some 20 per cent fewer school buses than they were two years ago, and the demand for tourist coaches has been damaged by the economic uncertainty, as tour operators hang back on new investment. So there was little to cheer in Henlys' interim results yesterday.

These showed operating profits slumped by a half to £16.4m in the six months to 30 June. The pre-tax figure showed reduced losses after last year's major restructuring.

The worry is that things will get worse before they get better. States can't go on forever extending the life of their existing school bus fleet, but with tax receipts falling as a result of the economic slowdown, there is every chance Henlys will prove to be over-optimistic in its forecast that the market will be flat in 2003.

As the chief executive, Allan Welsh, admitted yesterday, it is "extremely difficult to make clear predictions on the likely future evolution of our key markets". The bright spots are Ken Livingstone's encouragement of investment in new double-decker buses since becoming Mayor of London, and Henlys' own efforts to develop new products to drive sales. But the gloom will keep the shares, down 5p to 106.5p yesterday, stuck at the bus stop.