Desperate measures at Salvesen

The Investment Column
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Christian Salvesen's management has in effect been under siege since rival distribution group Hays took a tilt at it in the summer. In their wisdom, chief executive Chris Masters and his team rejected that tentative offer, thought to have been worth around 390p a share, as "not in the best interests of shareholders".

The quid pro quo with the institutions for maintaining Salvesen's independent existence was that the group would bring forward ways of unlocking shareholder value. Yesterday, Mr Masters was as good as his word, unveiling plans to pay pounds 150m in extra dividends, worth a total of 51p a share, and a demerger of the Aggreko specialist generator hire business. For his pains, he was greeted with a 1.5p fall in the share price to 322.5p as the rest of the market was soaring.

Quite apart from the rearguard action now being waged by former chief executive Sir Gerald Elliot, the problem Mr Masters faces is that his much-trailed plans are being seen as a rather desperate measure. Even yesterday's announcement of a 15 per cent rise in pre-tax profits to pounds 51.6m for the six months to September was being regarded cynically in some quarters as Mr Masters pulling out all the stops to boost his share price.

That is a little unfair, as he has worked hard since taking the reins in 1989 to bring some order into what was a rag-bag of businessess. He has dumped activities ranging from bricks and housebuilding to pollution control and oil services, raising pounds 100m over the past few years. Even so, it has never been clear what connection the remaining operations of distribution, frozen pea processing and generator hire had with each other. It therefore looks entirely logical to demerge the Aggreko hire business, as proposed.

The problem is that by doing so, the group will remove the main prop to profits. Aggreko was making pounds 2m a year when it was acquired 12 years ago; now it is making more than that every month.

There are some signs of an improving trend. Frozen veg, which saw profits jump 50 per cent to pounds 6.6m, is benefiting from a more normal crop after two bad years hit by drought. Meanwhile, Salvesen says it is seeing an end to the vice-like pressure the supermarket groups have exerted on its margins for the past four years or so.

Mr Masters says gearing of 110 per cent after the special dividends will not impede the group's ability to grow, but, bearing in mind what happened to Northern Electric after a similar scorched earth policy, perhaps the best thing for shareholders would be for a renewed bid from Hays to put the group out of its misery. Profits of approaching pounds 90m would put the shares on a forward p/e ratio of 15. Hold for further action.

FirstBus on track for growth

By splashing out almost pounds 160m on two key acquisitions this year in Manchester and Glasgow, FirstBus has cleverly positioned itself as the biggest player in the rapidly consolidating bus industry. Now it wants to repeat the same trick on the railways by squeezing better returns from another heavily subsidised transport sector.

Cost-cutting and efficiency gains have already pushed group operating margins up from 12.5 per cent to 14 per cent, helping pre-tax profits in the six months to September to rise from pounds 9m to pounds 23.5m. That figure was struck after pounds 2.2m of restructuring costs, with the acquisitions themselves chipping in pounds 7.2m to the bottom line. Adjusted earnings per share rose from 4.6p to 6.1p, helped by a pounds 3m tax credit, and the dividend was raised13 per cent to 1.8p.

The financial performance is all the more striking given the disruption caused by June's IRA bomb in Manchester. FirstBus estimates that 750,000 fewer journeys were made into the devastated city centre, costing its GM Buses subsidiary pounds 1m in lost revenue

Worse, passengers are not returning to Manchester as quickly as anticipated, but FirstBus has scrapped 85 bus services in and around the city to compensate for the loss of trade.

In Glasgow, FirstBus will learn in the new year whether its pounds 110m bid for Strathclyde Buses gets approval from the Monopolies and Mergers Commission. The referral prompted FirstBus to drop plans to bid for the Scotrail train franchise.

It is also waiting to hear from Opraf, the rail regulator, about Great Eastern Railways, where FirstBus is the preferred bidder to run the line that goes from London's Liverpool Street to Essex and beyond.

FirstBus already has a 24.5 per cent stake in Great Western Railways, one of the first rail franchises to be sold off and which has been short- listed for the North West Regional railways franchise. It is also involved in a joint venture to operate West Anglia railways.

Pre-tax profits after exceptionals of about pounds 48m put the shares, up 5p at 191p on a forward price-earnings ratio of 15. Undemanding, given the impressive track record and attractive growth prospects.

Breathing space for Filofax

It has been a pretty awful year for investors in Filofax, the personal organiser group. The shares nosedived in July when the company issued a profits warning caused by a change in ordering policy at WH Smith and de-stocking in the US.

Not surprisingly, the shares have been drifting ever since. That they jumped 8p to 146.5p yesterday was due more to relief at no more bad news than to any genuinely positive tidings.

Management's problem is that the profits warning - just a month after an upbeat statement - knocked investor confidence badly. Filofax is constantly battling to lose its "1980s Yuppie" tag and the slightest bit of bad news sets alarm bells ringing.

Yesterday's results for the six months to September were in line with the warning, with pre-tax profits of pounds 2.1m compared with the previous year's pounds 2.9m. Chief executive Robin Field has increased the dividend by 11 per cent to demonstrate the board's confidence in future prospects.

The trading picture is mixed, with France hit by destocking, the effects of industrial action and lower consumer confidence. Sweden is slow and America flat. The bright lights are Germany, Austria and Switzerland where combined sales are 25 per cent higher year- on-year. The UK, which accounts for half of group sales, has suffered from the WH Smith impact though Mr Field says this is a one-off hit, not a sea change in the market.

The product offer is being addressed, and Filofaxes costing pounds 200 and more will be introduced into the UK and other markets from next spring to satisfy demand for upmarket presents.

If the market for personal organisers is as stable as Filofax says, the shares - on a forward multiple of 11 on expected full-year profits of pounds 5.7m - are quite cheap. But they are unlikely to enjoy a significant re-rating until further news about Christmas trading. Hold.

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