Keep a close eye on Silvermines

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The Independent Online
1984 is catching up with us. If George Orwell's world remains mercifully remote in some ways, one vindication of his prophecies is the rise of closed-circuit surveillance systems.

Police and local communities welcome the product, saying it reduces crime enormously where it is installed.

One beneficiary of this trend is Silvermines, a Dublin-based company that makes these systems. But its ambitions lie further afield. This week, it will announce a tie-up with Mitsui of Japan to develop new markets in South-east Asia.

As one of the strongest growing economic regions in the world, the move could bring Silvermines rich rewards. In August, it reported first-half profits up 77 per cent to pounds 1.31m. It has also appointed a local electronics company as its exclusive distributor in China. Silvermines will also hope to sell automated building products through the new alliances.

Security product sales to the region's less liberal regimes could further boost profits. Ethical considerations apart, the shares (55p) are a buy.

AND then there were ... none? Will that fate befall the dozen regional electricity companies floated in 1990? Already, seven have been bought up, merged with a water company(Swalec to Welsh Water, Norweb to North West Water), or are the subject of a bid.

But does the sector in its new form still offer the prospect of good returns? Not according to David Bishop, utilities expert at accountants KPMG. Utilities will become a "high-risk, low-return environment", he predicts. Their only hope is overseas diversification as the UK utility market in the next decade shifts from a "low-risk and low-regulated return to a high- risk and low-return environment". Based on that gloomy prognosis, shares in the sector are best avoided.

EUROTUNNEL, says one analyst with uncharacteristic frankness, is a suppurating boil on the banks' backsides. One of the worst hit, calculates stockbroker Panmure Gordon, will be National Westminster, where profits could suffer a pounds 100m hit this year.

NatWest is believed to have loans of up to pounds 300m outstanding to the channel tunnel operator. Evidence of the problems faced by banks over the Chunnel stares them in the face. Eurotunnel debt trades on the secondary market at below 50 per cent of face value. And across the sector, demand for loans remains low, with consequent pressure on margins. The shares yield a healthy 4.1 per cent, forecast to rise to 4.7 per cent on earnings per share of 64.3p, up only 2.1 per cent, for 1995. Any economic slowdown is only likely to further impede progress. Sell.

MAD cow disease strikes down car dealer. Well, perhaps. Gowrings the motor dealer has been expanding into the leisure sector, involving a strong play on burger bars, through its ownership of Burger King franchises. It was the third largest Burger King operator in the country at the last count. With the catastrophic effect on beef consumption from the latest BSE scares, burger bars will be feeling the pain. There may be some relief from lower raw material prices, but it will be surprising if burger restaurants do not suffer a squeeze in the next few months. The share price, however, barely reflects this. After disappointing interims, when pre-tax profits grew to pounds 212,000 (pounds 179,000), the shares fell abruptly from a high of 108p, closing at 86p on Friday. But they have barely moved on the latest BSE scare. Sell.

ANOTHER pick for convertible followers. BICC's 10.75p gross convertible preference shares currently yield over 9 per cent to redemption in 2020. The ordinary shares, by contrast, look set to provide weak-to-flat dividend growth. The recent interest rate cut has already boosted the prefs. Over the medium term, it seems certain the convertibles can outperform the ordinaries, with a tidy yield to boot.

NICHE companies in big markets are often successful operators. While they are usually small enough to retain flexibility and guile, they also face less competition than the companies they supply. So if it is a big enough market, there is some protection against the normal business downturn when it comes.

Cobham (458p) is an example of such a business, occupying several profitable niches in aerospace. It is easily the biggest player in flight refuelling and has plenty of further scope for growth in this segment. The FRA Serco subsidiary should gain from the Government's market-testing programme.

With pounds 1bn of contracts to be awarded over the next two years, prospects there could not be rosier. The shares have performed very well over the past five years. In 1994, the company produced 26.8 per cent earnings growth, and even though that rate may slow in 1995, the shares remain attractive. Buy.

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