Kelda no longer the butt of jokes

Add Findel to your Christmas shopping list; Securicor's not the safest bet

Kevin Whiteman, the chief executive of Yorkshire Water's parent company Kelda, said that the group "buried the ghost of '95" this summer. It is certainly true that no one raised the spectre of rationing or of drought conditions despite the soaring temperatures. The company is now a very long way from the national laughing stock it became when it ran out of water eight years ago.

These days it looks one of the most responsible of the privatised utilities, a reputation that looks likely to be enhanced by the forthcoming price review by Ofwat. The regulator decides next year on a new five-year price regime and Kelda has put in one of the most modest requests in the industry (for an inflation-plus-3.6 per cent annual rise) to help find £1.3bn of infrastructure investment. Ofwat has signalled a relaxation of the price cuts of the past decade, and although there are bound to be wobbles in the run-up to the new deal, Kelda should get a lot of what it wants.

Meanwhile, the company is well within the regulator's guidelines for acceptable debt levels and manages its finances as tightly as it squeezes costs across its business. In the six months to September, it pocketed a 6 per cent rise in profits before the one-off gain of £14.6m from the sale of its stake in Waste Recycling.

The company also has modest interests overseas with potential for growth, although they were disappointing over the reported period. Wet weather in the US meant its metered customers in New England had no need to sprinkle their lawns, so sales were just flat, or down in sterling terms because of the translation effect of the weaker dollar. The hope is that next year, regulators will allow the first price rises in seven years.

We were buyers of Kelda shares when we last looked at the company in March and, up 9 per cent since then, they trade on 12 times Cazenove's forecast of earnings this year. Its main attraction, of course, is the dividend, raised 3 per cent yesterday and giving a prospective yield this year of 6 per cent.

Buy.

Add Findel to your Christmas shopping list

Christmas comes early for Findel, the mail order and stationery group hitherto known as Fine Art Developments. While other retailers fret over whether Santa will ever come, Findel can afford to indulge in a little postprandial snoozing.

Interim results revealed that sales in the group's mail order arm had soared by 22 per cent in the 35 weeks to 30 November, which is when catalogue shoppers stop shopping and start wrapping. The division is home to a string of catalogues selling everything from garden furniture to soft furnishings, DVD players to sofas. Its loyal fan base can also tap the group's credit facility to keep on spending if strapped for cash. A move into branded discount clothing should give customers another reason to keep spending into the New Year.

Education supplies - Findel's other half, which sells everything from desks and chairs to maps and books - has felt the pinch, with schools struggling to foot higher salary bills, but the outlook for 2004 is better.

Various accounting changes, related to its decision to write off costs of acquiring customers as they are incurred, meant interim pre-tax profits were £333,000 against a £2.4m loss a year ago, but Seymour Pierce is predicting full-year profits of £36.5m. This puts the shares, which yield 5 per cent and rose12.75p to 312p yesterday, on an undemanding price-earnings ratio of 10 times. Buy.

Securicor's not the safest bet

It has been a rough old time for Securicor. Its airport security business failed to spot the 11 September hijackers and the federal government has taken over that work now, leaving Securicor with a tiny, inefficient US operation and a massive litigation headache.

Meanwhile, the economic slowdown and intense competition has weakened demand for its manned guarding business. And its cash handling division is dependent on the occasional big bank outsourcing contract for growth.

Financial results have been scarred by the exit from businesses unrelated to security and labelled non-core. The group is now at least a coherent, if not particularly attractive, set of businesses. Yesterday's interim figures showed a profit of £49.5m compared with a loss last time.

Nick Buckles, the chief executive, promised organic growth outside Europe and the stirrings of a recovery in Germany. He also reckons the security guarding business will get a boost from new regulations to ensure guards are vetted and licensed more thoroughly, giving Securicor the opportunity to win business from more disreputable outfits.

The fastest growth will come from the "justice division" that runs prisons, transports prisoners and monitors offenders who have submitted to electronic tagging.

News of strong cashflows helped the shares surge 10p to 91p yesterday, putting them on 10 times this year's earnings. That looks cheap enough to hold, but there are more exciting prospects elsewhere.

Comments