Investment Column: Merger lifts outlook for Securicor

Cash-rich Centrica still worthy of affection; Watch this space as Petchey ups his stake
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Armed robberies are cyclical. Securicor, whose guards transport cash to and from banks, is currently enduring a rise in attacks, as the criminal community gets wise to the company's most recent changes to procedures and vehicle design. As well as the lost money itself, Securicor will have to pay out on further improvements to the way it does business - which should flummox the felons for another cycle.

Heists aside, the security group has put in a creditable performance over the past six months. The plan to merge with its Danish rival, the once derided Group 4 Falck, is well advanced, with few people anticipating competition authorities in Europe will derail the deal. A little trimming of the combined group in the Benelux countries might be needed but, fingers crossed, that should be all.

We were sniffy about Securicor's prospects in December, but we advised holding the shares on the grounds that they were cheap. The announcement of the merger in February has made us more positive.

The expectation is that the combined company will be able to raise its earnings by a fifth for each of the next two years, thanks to a £35m cost savings programme, mainly in the vast European security patrol business. The merger also moves Securicor into electronic security (CCTV monitoring and alarms), where it has been poor compared with Group 4.

The jury is still out on whether Group 4 Securicor can generate meaningful sales growth, though. Security is an intensely competitive market, with smaller operators springing up all the time. A major hope, in the UK at least, is that new rules requiring security guards to be licensed and trained will force some of the smaller players to the wall.

This is not a share for the pension fund. The dividend is not generous. The combined group's tentative positions in emerging markets and the growth of private sector involvement in "justice services" (running prisons, tagging offenders and the like), are outweighed by the ex-growth nature of the European cash handling business. But the merger-based earnings enhancement and the current valuation - at a 30 per cent discount to the market leader - suggest it could be a medium-term banker for new investors.

Cash-rich Centrica still worthy of affection

British Gas raised prices to its millions of UK customers in January, and hundreds of thousands of them took the advice of energy watchdogs and defected. A worrisome note sounded at the parent company's shareholder meeting yesterday was that, with wholesale energy prices picking up, BG's profit margins are going to come under further pressure. Does it look likely customers will swallow another rise?

One mustn't despair, though, since rivals will have to follow if prices keep going up. Centrica is also naturally hedged, with interests in power generation. Margin pressure is real, but Centrica is cutting costs.

At the AGM, the outgoing chairman, Sir Michael Perry was permitted a look back over his seven-year tenure, during which time Centrica has assembled an extraordinary collection of assets. These go upwards from BG and equivalent domestic energy suppliers in North America, into power stations and gas storage. They also go outwards into telecoms (through One.Tel, which should benefit from further deregulation of the UK market) and motoring and financial services, via the AA, which now has 15 million members.

Think about it too much and you might start to question whether it really hangs together, whether the cross-selling opportunities in services are as large as claimed. But for now this is a company throwing off more cash than it can reinvest. Dividend hikes and share buybacks are in prospect for years.

We declared our love for this stock on Valentine's Day last year, since when it has risen by 44 per cent to 215.25p. That is not bargain basement any more, but it is a fair price for a share with good prospects. Buy.

Watch this space as Petchey ups his stake

Jack Petchey, the septuagenarian investor, has taken his stake in Bizspace more than 10 per cent, we learnt yesterday. Mr Petchey is widely followed in the City, having an impressive record in spotting undervalued property plays. Shares in Bizspace, which rents "four walls and a floor" to small businesses, were below 30p when he first began stakebuilding in it last year and are now 41p.

Also yesterday, Bizspace said its 28 properties, from Newcastle to Brighton, were valued at 46p per share, up from 43p a year ago - suggesting that the screaming undervaluation identified by Mr Petchey has been largely rectified by the market. If anything, you may worry that the discount to assets is narrower than for most property companies.

This is justified, though. Short-lease accommodation for small businesses has proved a very resilient market. In the good times, growing businesses need to move fast into bigger premises; in the bad times, they can downsize into Bizspace's cheap and cheerful premises. The company also has a wide variety of tenants, providing further safety. Hold.

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