Goodies in store from retailers but biggest rewards favour bold
Thursday 02 January 1997
The prospects for the next 12 months are more difficult to divine than the last, with a general election looming and Wall Street looking ever- more precarious after the mountainous heights scaled by US equities in 1996.
None the less, our tips for this year provide a wide spread of large capitalisation stocks to provide a firm base for the portfolio, with a liberal sprinkling of recovery and speculative stocks to add, we hope, sparkle.
Retailing is a sector which should do well in the expected consumer boom in 1997. It is the year when Sears, the slumbering giant of the industry, must come to life. If it doesn't then it will be revamped, taken over or even broken up. Assets are more than 120p a share with Selfridges probably worth 45p. The shares have enjoyed a festive rally. At 95p they are selling at 18 times prospective earnings.
Storehouse shares have had a torrid time in recent months as the market has become worried about its flat sales and profits that appear to be driven by cost-cutting. Shares in the BhS and Mothercare group have plunged from 361p in April to 258p at the year's close but they now look oversold. They trade on a forward rating of just 12, a substantial discount to the sector which seems an anomaly.
Finally in this trio of retailers comes Allders. Its department stores are not exactly sexy but are starting to look interesting as an investment. The duty-free business has gone and recent sales growth at the 30 department stores has been strong. There is also the prospect of sales growth at the recently purchased Owen Owen stores. The shares have taken a tumble this year but at 140p now trade on a very lowly rating.
Pearson, the media and financial services conglomerate, will be in the news in 1997, either when it announces a value-building restructuring or finds itself on the receiving end of a hostile bid. Either way, there is value to be unlocked, and the current price of 749.5p, while historically high, still leaves room for growth.
The real money for investors is more likely to be made in the riskier parts of the market. Some investors might be put off by the fact that Flextech, which owns pay-TV channels such as UK Gold and Bravo, has never made a profit, and yet has seen its market capitalisation soar to an impressive pounds 750m. Profits are in sight, however, thanks to a joint venture with the BBC to launch new channels for digital. The new business, based on the BBC's huge programming library, will build on a few stellar assets already in the Flextech stable, including a 20 per cent stake in Scottish Television and a controlling share (soon to be 100 per cent) in UK Gold and UK Living, which are worth pounds 200m between them. Flextech could emerge as the digital champion, emulating the spectacular rise of BSkyB. The shares at 677.5p are worth a punt.
In the same vein is Pace Micro Technology. With the way now clear for the launch of up to 200 digital television channels in the UK by late 1997, BSkyB is expected to give Pace the go-ahead to manufacture over 100,000 set-top boxes. Pace, one of four preferred bidders, will be pushed to meet BSkyB's tight deadline to supply the decoders, but the company's extensive experience of international digital television markets should stand it in good stead. The shares are not cheap at 230.5p, but could be rewarding.
Caspian is another company which should do well out of new television technology, having positioned itself to exploit the potential goldmine of pay-per-view football, which could be introduced as early as next season. After buying Premier League club Leeds United in the summer, Caspian has assembled a formidable management team, including former Manchester United finance director Robin Launders as chief executive of the Elland Road club. Leeds will never match the lure of Manchester United's brand name but the shares at 46p have much further to go despite almost doubling in the last couple of months.
The unrealised potential in Ascot Holdings is not immediately obvious. As Control Securities, it was the vehicle for jailed businessman Nazmu Virani and, since a pounds 287m takeover in the summer, is now the owner of Suter, the conglomerate made famous by the controversial share-dealings of its former chairman, David Abell. But it is now in the hands of a new management team led by Howard Dyer.Turning round Ascot has proved a struggle since he took over the reins over four years ago, but there are some decent engineering and chemicals businesses waiting to emerge from Suter. Worth backing the man, even if the shares at 285p may take a while to respond.
Finally, British Taxpayers Association could prove an outrageous but rewarding flutter. It is traded on Ofex and profits remain an ambition. Idea is to cash in on the new self-assessment tax regime. The company's roots go back to the British Taxpayers Association started in 1919 to help ex-servicemen. The shares, expected to move to AIM, are 28p.
How they performed in 1996
Tipped at Price now Gain/loss
Allied Domecq 525p 456.5p -13%
Caradon 195.5p 239p +22%
Continental Foods 84p 108p* +29%
Field Group 327p 378.5p +16%
Hillsdown 169p 200p +18%
Laporte 674p 683.5p +1.4%
Pet City 382p 594p* +55%
Stakis 80.5p 97.5p +21%
Tomkins 282p 268.5p -4.8%
Trocadero 46p 53p +15%
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