Full speed ahead for Railtrack

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It Seems that even Railtrack, with all the doubts expressed by some sceptics, has caught the bug that seems to catch most utility shares. Growth in profits accelerates far quicker than had seemed likely, as old inefficiencies are wiped out.

Shares in the rail network hit record highs last week, of 374p on Friday, lifted by an upgrade from broker NatWest. The stockbroker now sees pre- tax profits increasing by pounds 5m to pounds 305m in 1997, and then by another pounds 10m the following year.

Having risen over 75 per cent since their flotation in May, the shares must now be approaching the top end of their valuation.

However, given the seemingly inexorable rise, it would be foolish to predict this is the end.

CAPITAL RADIO (573.5p), beloved by its metropolitan audience for Chris Tarrant, has branched out into feeding people. The company has agreed to buy the My Kinda Town restaurant chain for pounds 57m, which could be earnings enhancing from its completion in December.

With the shares down after a placing, now is a good time to benefit from indigestion and buy. Radio advertising looks set to return to growth rates of 12 per cent or above, and a rating of 16 times 1997 earnings is tempting. Pre-tax profits could hit pounds 40m next year, and pounds 48m in 1998.

WHERE there's muck, there's brass, is the phrase that springs to mind over an AIM listing for Recycling Services Group. In a placing at 90p a share through its broker Albert Sharp, the company hopes to raise up to pounds 4m, of which pounds 2.35m will be spent on the acquisition of G&P, which recovers lead from spent lead acid batteries.

Although the name suggests a business operating in a broad field of activities, it is in fact, closer to an old-fashioned scrap metal merchant. Its core business, JBR, is the UK's largest processor of silver bearing waste, mainly from photographic film. It also has a copper and aluminium cable recovery business. One risk highlighted in the prospectus is that one of its suppliers accounts for 35 per cent of JBR's total operating margin.

Although the group sees no reason why it should not retain the contract, it is a question mark shareholders should be aware of. At the placing price, the shares are on a realistic price earnings multiple of 10.1 times 1996 earnings.

FIBRENET, floated on AIM in June at pounds 1, and now 123.5p, specialises in laying down fibreoptic telecommunication networks for business. In that sense, it is not dissimilar to cable companies - potential investors should be aware of the potential downside this represents. However, Fibrenet has the advantage that it is not trying to sell its wares to the fickle consumer.

It announced its first customer for its Thames Valley fibre ring last month, which is due to be completed in February, 1997. It also supplies local area networks for computers, which contributes most of its pounds 5m plus sales. Forecasts for the business a few years out, from house broker Greig Middleton, suggest sales can hit pounds 31m by 1998; pre-tax profits would be pounds 10m plus.

The shares trade on a suitably unreal rating - 200 times on an historical basis. Even so, worth a nibble.

A SEA change at PowerGen (599.5p), the electricity generator, which is likely to see dividend growth slow down to a more normal pace, tracking earnings per share, rather than, to date, beating EPS hands down.

Analysts at Merrill Lynch reckon large international acquisitions will, from now on, take priority over share buybacks. The team has cut back its estimates, partly because of growing losses at its Kinetica gas division. The shares, they say, are a hold. They now see pre-tax profits of pounds 530m in 1997, down from pounds 620m, although they have upped the estimated dividend a fraction, to 25.2p. Thereafter, the dividend could grow at 10 per cent a year.

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