Take profits now on Portland

Great Portland Estates; Kewill Systems; Penna
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The Independent Online

Great Portland Estates yesterday confirmed its low status by missing analysts' forecasts by some margin. The group came out with a flurry of bad news.

Richard Peskin, chairman, said that "signs of economic downswing are emerging". The £44m decline in the capital value of its shopping centres, which make up a fifth of its portfolio, was much worse than expected. Overall, the portfolio's value increased by 5 per cent to 396p a share, on a diluted basis, against market expectations of 415p a share, for the year to March.

The company has been through a restructuring over the last year that has seen it return 80p a share to investors through selling £400m of property. Yesterday, Great Portland said it would sell its remaining shopping centres, worth £235m, to leave it as a central London property group, with real estate in the capital worth £1bn

The group is tackling its £700m expensively financed debt mountain, repaying a £100m debenture. There has also been a management reshuffle, which has seen a new managing director, Peter Shaw, brought in.

The company's shares yesterday closed down 5.5p to 302.5, showing a chunky discount to the reported NAV of 396p a share. Great Portland is often talked about as a bid target with rival Liberty International holding an 8 per cent stake -but the debt remains a deterrent to any predator.

Despite the City's reservations about the company, the shares have motored ahead over the past 18 months from about 200p, on the back of a general move into defensive stocks. But with the investment climate moving away from defensives and this company showing problems, now is the time to take profits.

Kewill Systems

Increasing competition, much more than the so-far mild slowdown in the G7 economies, is what's hurting many tech firms. While that competition fueled capital formation, it has since given rise to overcapacity.

The consequence for investors who followed this column's earlier advice to buy Kewill Systems has been the destruction of value on a grand scale. Kewill, the B2B logistics software group, surged to 3,113p early last year but is now nearly 96 per cent off that lofty peak.

Since then, Kewill has found its main businesses under pressure at every turn. Consequently, it has sold its main remaining UK operation in enterprise computing and has also bailed out of logistics. That leaves Kewill with its e-commerce software business, which is growing at about 20 per cent a year, and the rump of its enterprise computing operation in the US, which is ex-growth and might be sold.

Year-to-March figures yesterday showed that pre-tax profits, padded by a £3.8m gain on disposals, nearly doubled to £3.3m, from £1.8m a year earlier. Turnover contracted to £69m, from £75m. On a brighter note, Kewill has £20m in the bank and cash flow is neutral. What's more, its .Ship software, which automates companies' e-commerce links with suppliers and customers, is winning recruits such as Tesco after many early successes.

Yet, for the foreseeable future, Kewill will face intense competition from bigger rivals such as Ariba and Commerce One, and corresponding pressure on prices. Though Bob Malley is taking over from Geoffrey Finlay as chief executive, the difficulties facing the company make a fresh start unlikely. With the shares down 4.5p at 133.5p, placing Kewill on a prospective price/earnings ratio of 20 or more, there is no reason for investors to hold the stock. Sell.

Penna

Penna consulting is taking advantage of companies' increasing demand for outside help when dealing with their staff. The company, formerly Penna Holdings, has expanded through organic growth and acquisitions and now offers a vast array of services, ranging from helping companies deal with making staff redundant to the recruitment, retention and training of new staff.

Shares in Penna rose 16p to 538.5p yesterday after the group reported a 13 per cent rise in pre-tax profits to £7.5m in the year to March, on turnover up 19 per cent to £47.9m. The company said it is well placed for future growth, too.

Advising other organisations on the best way to lay off staff is a booming area, as redundancy becomes more common. A survey carried out by Penna found that seven out of 10 people have some experience of redundancy ­ either being made redundant themselves or through a relative or close friend.

But the company has gone against best corporate practice by having both a chief executive and an executive chairman, leaving it unclear who really runs the group. Michael Jolly, former head of Tussaud's, will become chief executive next month, while the current incumbent, Suzie Mummé, moves up to the chair.

On a prospective price/earnings ratio of 14, the shares look fair value.

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