Fund managers show their flair in share race: The Independent's share race produced a wide range of results, Clare Dobie reports

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FUND managers who take part in our share race are anything but boring. Their performance last year ranged from the excellent to the disastrous while their selections ranged from penny stocks to blue chips. So much for their profession's image of grey-suited uniformity.

Our congratulations go to Colin McLean of Scottish Value Management who once again scooped the pool. He won in 1989 and has been close in each of the last two years.

His winning selection was Great Western Resources, the tiny oil, gas and coal company, which was risky. But the rewards proved rich, with the shares more than doubling from 8p to 18p in 1992. A bottle of champagne is on its way.

Sarah Pohlinger, another previous winner, came second with Granada, which gained 86 per cent, rising from 189p to 351p under Gerry Robinson's guiding hand. She left BZW Investment Management during the year to go to Australia and we welcome Philip Winston in her place.

In the first year he has taken part, Bernard Clark of Lloyds Investment Managers saw the value of shares in his selection, Wickes, the DIY retailer, rise 39 per cent to 78p.

He was narrowly beaten by Mark Wasilewski of CIN Management who chose BTR, up 43 per cent, and who, despite a strong performance, has stood down in favour of a colleague, Wilf Beresford.

In last place came Richard Smith of Henderson Administration who had the misfortune to pick Davies & Newman Holdings, the owner of Dan-Air, which collapsed during the year, leaving the shares valueless. Mr Smith has gamely agreed to take part again and we wish him better luck in 1993.

Here are the contestants' entries for next year. Funds they manage may own or deal in them.


London International Group's core latex-based businesses continue to perform strongly. In condoms, the company has been successful in expanding into the fast-growing markets of Asia. Now public vending machines at home will offer more choice and be more 'user-friendly'.

Changes in management (recruits have come from premier consumer products companies such as Colgate-Palmolive and Procter & Gamble) reflect the greater marketing focus of the group. The impact of this is being felt not only in the condom market but also in other areas of the business such as health and beauty products (Buttercup cough medicines, for example).

The growth of the specialist surgeon's glove business will add increasingly to profits, notably in the US. The group will also benefit from a rationalisation of production facilities.

Most earnings forecasts are for growth of over 20 per cent for the next two years and double-digit growth for the following year. Little upturn is expected in the photoprocessing division in the short term, but it is sensitive to any upturn in consumer spending.

At 252p the shares stand at a discount to the market on next year's earnings and a small yield premium. The cash flow is improving, which will reduce the gearing, now at 90 per cent.


1993 is expected to be a year of recovery, not only in growth but sentiment and market activity. The types of company that are likely to perform well in these circumstances are the early cycle plays and those companies that have fallen on hard times in 1992.

Our choice, SG Warburg, has had a difficult 1992. Interim profits were down 44 per cent at pounds 51.2m versus expectations of about pounds 75m. However, Warburg and its clients should begin to feel the benefits of economic recovery in 1993. This may initially lead to an increase in cash calls either to finance recovery or to repair recessional damage. Improved sentiment may even lead to greater takeover activity.

Warburg's recent problems have been on the investment banking side with some ill-advised risks going sour; fixed-interest positions exposed by the exit from the ERM; and significant losses in the Japanese equity business. These experiences are likely to instil greater prudence and an absence of 'exceptional' losses. Profits in 1994 may reach pounds 170m.


I was wrong to choose a highly geared, cyclical stock for 1992. Interest rates did not fall fast enough nor did the economic recovery really take hold. I do believe that a similar choice for 1993 has a better chance of outpacing most companies in share price terms.

1992 has been a traumatic year for Wace Group. It suffered initially from allegations about John Clegg, who subsequently resigned. High gearing and falling property values wrought further havoc with the share price.

A new chief executive, Trevor Grice, was appointed seven weeks ago following a period as chief executive at Renold and Horsell, which was taken over by Cookson. An announcement on 15 December made clear the extent of the fall in property values, which look to be at rock bottom now. It also disclosed the intention to sell the US operations to reduce debt. Current trading remains difficult but there are some encouraging areas of business.

Disposals of the US operations as well as some of the properties, concentration on developing synergies between divisional companies and a move to manage the businesses more for cash should result in a steady flow of better news in 1993. Profits should exceed pounds 10m, which will give earnings of at least 6p a share. With the shares at 63p the rating is not high for a recovery stock.


Of all the investment ideas in currency the one that seems most appropriate in a European context is the restructuring theme. The trick is to wait until most of the hard work of selling businesses and reducing employment and premises has been done, preferably with a new management in place, working with a balance sheet with net cash or very lowly geared, and a backward-looking share price. One such company is Chloride, which is currently trading at 10 1/4 p and capitalised at just over pounds 20m. The restructuring is now almost complete, leaving about pounds 70m of sales from electronic and lighting businesses in the US and Europe. A further pounds 30m of sales from the remaining battery businesses in Africa is potentially on the block and assuming a price of only one half annual sales the restructured company will be completely debt-free, operating in businesses that service large markets. It is already responding to the margin-enhancing treatment of the new managing director, Keith Hodgkinson, formerly head of GEC's metering division. Although profits this year will be non-existent it is reasonable to pencil in a return to profitability in 1993/4, with an objective of an 8 per cent pre-tax margin on sales in 1994/5. The company should also be nicely cash-generative by then, giving potential for acquisitions. On the assumption that the shares trade at a market multiple in 18 months' time, the upside could be substantial, while the downside is limited by the clean balance sheet and a large industrial shareholder (Mercurius) waiting in the wings with over 20 per cent of the equity and board representation.


For an excellent company to have undervalued shares there usually has to be a good reason. Such neglect often arises when the City cannot see past immediate problems. My choice, Ferranti, has certainly had its share of troubles. But the share price simply does not reflect the right balance between these and its potential.

Following litigation and a series of disputes arising from events in the 1980s, Ferranti's share price has fallen to just one tenth of its 1989 level. At 9p, the group is capitalised at only pounds 90m, yet has substantial assets. Ferranti has arrested the cash outflow and has good prospects of winning orders in 1993 that could move it into profit.

Meanwhile, despite high borrowings, it has substantial assets in the form of properties, tax losses, a pension fund surplus and proprietary technology. If there is a refinancing in 1993, I believe it will be at a substantially higher share price level.

----------------------------------------------------------------- 1992 PERFORMANCE ----------------------------------------------------------------- Fund manager Share Move % Colin McLean GWR +125 Sarah Pohlinger Granada +86 Mark Wasilewski BTR +43 Bernard Clark Wickes +39 Richard Smith D&N -100 ----------------------------------------------------------------- TIPS FOR 1993 ----------------------------------------------------------------- Fund manager Share Price p Wilf Beresford SG Warburg 545 Richard Smith Wace Group 63 Bernard Clark Chloride 10 1/4 Colin McLean Ferranti 9 Philip Winston London Int. 252 -----------------------------------------------------------------