Grid should spark investor interest

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The Independent Online
NOW is the time to buy into National Grid (196p). A succulent yield of 7.1 per cent compares favourably with British Telecom (6.4 per cent) and British Gas on 7 per cent. The latter two face ferocious competition, however, whereas National Grid has the makings of a truly dull and safe utility. Famous last words perhaps, given that was everybody's initial verdict on British Gas and BT.

Even so, National Grid will still offer reasonable dividend growth over the next few years. Energis, its telecoms subsidiary, providing services to big companies over a network piggy-backed on the grid itself, adds a touch of dash. So you get the picture. Why on earth is a seemingly safe utility trailing on the same yield as the two embattled behemoths?

The answer comes in part from how it was sold. Privatisation was a low- key affair. Institutions automatically received shares in the Grid, through their holdings in regional electricity companies (RECs), which spun off their Grid stakes to shareholders.

Many have been sellers since, as the free shares imbalanced their portfolios, giving too much of a utility bias. The result is a massive overhang of stock, as the City puts it. Many of the RECs are still to sell their shares, while more selling from pension funds is also on the cards. That will keep the price depressed for a while yet: a perfect opportunity for the rest of us to buy. It won't last for ever.

BUY shares in Fuller Smith & Turner, (418p) that most genial of southern brewers. Its performance has hardly sparkled over the past few years, both against its peers and the market. However, a decent set of interims restores faith in its long-term growth potential. Sales rose 12 per cent, while operating profits jumped 14 per cent to pounds 10.9m.

Its free trade business continues to flourish. The only blot is a feeble pounds 852,000 profit from its wholesale and retail wine business. Its 62 shops have seen profits halve from pounds 1.5m in 1990. Perhaps scope for some trimming?

NEXT'S share price has hit new highs in the past few months. The winter trading statement it issued last week only confirmed the remarkable comeback since its near meltdown of 1990. Sales in Next Retail were ahead 13 per cent on the previous year, while selling space was only up 4.5 per cent. Sales in its Next Directory were up 17 per cent. Its shares now command a premium rating of 16.5 times forecast 1996 earnings. The question for investors is: can management keep up the momentum?

It is rare for any retailer, especially in the more cyclical clothing end of the market, to defy the normal swings of fortune most of them experience. Next is now entering its fifth year of uninterrupted growth.

The City however is starting to make cautionary noises. With the shares at 434p and on a 30 per cent premium to the market, it is difficult to see how the group can continue this sort of growth indefinitely. Analyst Tony Shiret at stockbroker BZW shares this opinion and reckons the risks now outweigh the reward. Avoid.

NEXT, as one analyst describes it, may be a mini Marks and Spencer, at least as far as the strength of its brand goes. But Budgens is down in the bargain basement sector of the market. Ahead of its interim figures on Wednesday, there seems little to be excited about.

A competitive high-street environment, with Budgens' upmarket brethren all forced into discounting to retain customers, has seen life get that much tougher lower down the ladder. National Lottery ticket sales will have helped, as will have Sunday trading.

But gross margins are likely to be stagnant, held back by the conversion of six lower margin Penny Market stores to the Budgens format. There is also uncertainty as to what exactly the sourcing tie-in with German retailer REWE brings. NatWest Securities expects interim profits to reach pounds 4.3m (pounds 2.8m) this year, on sales of pounds 153m (pounds 150.2m). At 34p, the shares are on a market rating, which can hardly be justified, especially with the absence of bid speculation.

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