Securicor looks safe for the long term

Securicor; Powderject; TJ Hughes
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The Independent Online

There has been a pall over the Securicor share price since the events of 11 September, when the group's airport security aparatus proved ineffectual against groups of determined terrorists armed, apparently, with penknives. Securicor's top brass are on a tour of shareholders this week to try and assure them, among other things, that the threat of litigation from the terrorists' victims is minimal.

On Friday afternoon, it emerged that Nick Buckles, the chief executive designate, had taken advantage of the fall to top up his holding, picking up 40,000 shares. Should private investors follow suit?

Not on a short-term view. Results for the financial year that closed at the weekend are set to show a mixed performance, with margins being squeezed across the group. Before the terrorist atrocities, Securicor's Argenbright business was being forced to cut prices to maintain its number one position in airport security, as cash-strapped airlines drove a hard bargain in contract negotiations. And its distribution joint venture with Deutsche Post has suffered a miserable second-half as demand for next-day deliveries fell as a result of the business slowdown.

Market forecasts were reduced last week; yesterday, the shares rebounded 2.75p to 119.75p. They are back at the levels of 18 months ago, though, and represent good value on a longer view. The group sits at a discount to its peers, and yet is showing organic growth – of 6 per cent – that outstrips many of them. ABN Amro expects 7.5p of earnings in 2002.

While the threat of legal action remains a concern, US government legislation underwriting the liabilities of airlines and their agents looks likely to extend to Argenbright. The government's new involvement in airport security should put a brake on the pricing pressure that the company had been experiencing.

Mr Buckles' accession at the end of the year is widely expected to prompt a review of the group's structure, with non-core businesses such as the newly profitable information services and internet security divisions on the block. These moves could trigger a renewed interest in the shares, which are a buy for investors able to take the long view.

Powderject

What's in a name? Not a lot, it would seem, since the fortunes of Powderject Pharmaceuticals no longer have much to do with the development of its patented Powderject technology for needle-free injections. It is just a plain old vaccines manufacturer now.

No matter. There is plenty of growth in vaccines, as witnessed by the start of the UK government's annual campaign to encourage flu vaccinations.

A trading update yesterday gave Powderject the chance to boast that, for the second year in a row, it is the first company in the world to get its flu vaccine on the market. So Fluvarin sales are again poised to beat records, up at least 40 per cent on last year's £40.6m. Prices are buoyant; rival manufacturers have pulled out so supply is falling just as demand is increasing. The US government now wants everyone over 50 to be vaccinated, arguing it saves on healthcare costs in the long run, while companies are increasingly looking to vaccinate their own workforces to cut down on sick days.

Fluvarin needs to be reinvented every year, so there is no guarantee that this year's stellar performance can be replicated, but a £13m investment in its Liverpool manufacturing plant will extend capacity next winter. To further reduce risk, Powderject has built – through impressive acquisitions – a robust portfolio of nine vaccines, ranging across yellow fever, tuberculosis and travel diarrhoea.

The Powderject needleless syringe technology has largely been written off by analysts , but there remains the hope that it could provide a nice surprise if development work in progress shows it can be commercialised for use with some of the group's vaccines. Also, founder and chairman Paul Drayson is still promising to sell the technology for use with non-vaccine pharmaceutical products by the end of the year.

The company is on course to break even next year and WestLB Panmure, its broker, is reckoning on 8.3p of earnings in 2003, doubling the year after. Powderject shares, up 13.5p to 348.5p, are at a discount to others in the sector. Buy.

TJ Hughes

TJ Hughes, the north-western discount department store chain, has got problems.

The clothes and household goods retailer plunged into the red with a £1.27m loss in the six months to 28 July, compared to a £2.6m profit last year, which included exceptional costs following the discovery of accidentally inflated profit margins and a lot more old stock on the books than previously thought.

The mistake cost the company its finance director and triggered a hostile bid for the business by its former chairman. The bid was fought off, but the overstocking is still being worked through.

TJ has replenished its management team, hiring Andy Goody from KPMG as finance director, and boosted like-for-like sales, which were up 5.6 per cent in the past three weeks. The share rose from their recent lows, up 4.5p to 83.5p.

Yet it is too early to tell whether these are signs of a genuine recovery, or a blip caused by comparisons with unusually low levels of trading last year due to the fuel strikes. Teather & Greenwood predicts £4.5m pre-tax profit for the full year, putting the stock on a price-earnings multiple of less than 8. That's cheap, but future growth is not likely to be worth chasing amid this much risk.

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