National Grid still lacks spark

Ted Baker; Eyretel
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The Independent Online

The implosion of Marconi, that collapsing star of the telecoms investment boom, has dwarfed most misadventures in the New Economy, but National Grid is another British giant to have been frittering away shareholder value in the past two years.

Its mix of revenue stability at home and consolidation abroad should have made it the safest of havens for frightened investors. But after peaking a year ago at 646p, the shares were yesterday off 24p to 435p, the same level as at this time in 1999.

It still owns a third of Energis, the telecoms carrier it created from scratch and floated in 1997, but has seen the value of that investment come tumbling down. Meanwhile, it has been hurling cash into joint ventures in Brazil, Argentina and Chile. The biggest of these, its Brazilian telecoms group, Intelig, has failed to recoup capital expenditure costs from telecoms equipment companies as hoped, and National Grid is now casting around for an exit.

If it really can get out, then the chances of renewed share price strength will look much better. The UK business is trading in line with expectations, according to yesterday's update, and has only just begun its latest regulatory price regime that will take it through to 2006. There is plenty of scope to boost profits through cost cuts.

Its purchase of Niagara Mohawk will give it the same robust electricity transmission interests in the US as the UK, and analysts are confident that New York state regulators will set out long-term pricing rules for the business within weeks.

The core business is throwing off cash, leaving little doubt over National Grid's ability to maintain its progressive dividend policy. It has said it will grow the pay-out by 5 per cent in real terms each year until at least 2005.

The stock looks an ideal investment for widows and orphans, if only it would hang up on Latin America. But until its future strategy in the region becomes clear, the stock is not worth chasing.

Ted Baker

Ted Baker, the trendy retailer that started out in menswear but now styles itself as a lifestyle "brand", has captured a nice little niche for itself on the high street. Its quirky style gives it a cool appeal that has been pioneered by its founder, Ray Kelvin.

It appears to know its market and product innovations include wrinkle-free suits you could sleep in and go into work wearing the next day and clubbers' shirts that combat body odour. The group has branched out into womenswear, which now accounts for 43 per cent of sales, and luxury goods staples like sunglasses and fragrances. It now has a chain of 22 shops as well as a wholesaling division which sells its clothes to independent retailers.

Floated in 1997, the shares have been an erratic performer but have done well in difficult markets this year.

Yesterday's figures for the six months to 11 August continued the good run with pre-tax profits up 19 per cent to £2.5m. Retail sales were up 46.5 per cent to £18.6m, but this is not a like-for-like figure. Average square footage increased by 40 per cent in the year suggesting that a like-for-like sales increase is probably about 5 or 6 per cent.

Margins fell after Ted Baker brought the timing of its sale forward and opened more lower-margin stores. The business appears to have been relatively unaffected by the US fall-out. It has one US store in Manhattan which has suffered, though a concession due to open in Bloomingdales is operated under licence. Ted Baker is certainly a good business but it is as exposed to weakening consumer demand as any other high street operator. The shares jumped 19p to 277.5p yesterday which on Deutsche Bank's full-year profit forecast of £9.4m puts the shares on a forward price-earnings ratio of 18. That looks high enough.

Eyretel

"Your call may be recorded for staff training purposes." Often said after call centre phone numbers are advertised, but just how many phones are monitored in this way? Not many, usually, but Eyretel has developed a system that is able to record every single call and then analyse the data. For now, that's unique.

Eyretel said yesterday that it is heading back to profitability earlier than expected and that sales for the six months to September will show growth of 28 per cent. That's pretty good when cash-strapped businesses across the world are cutting back on this sort of customer relations management software. Growth in the US is particularly impressive – up more than 50 per cent – thanks to a strong new management team there.

Competitors are closing in, however, and the company remains small, debt-burdened and vulnerable until the economic uncertainty clears. The shares have halved from their 2000 issue price but, up 9.5p to 60p yesterday, now look to be worth watching.

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