Lock on to Williams Holdings

CITY TALK
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The Independent Online
The continued pariah status of diversified industrials remains a mystery. Williams Holdings (318p) has done what its critics have asked of it and turned itself from a sprawl of home products and services into a fire protection and security company. Barring an unexpected OFT competition ruling, the company should complete the takeover of Chubb, the locks group, early next month. The price paid for Chubb was full, but the possibilities for the combined company are appealing: Williams could become a global market leader, particularly in Asia where the idea of locks on one's house is gaining currency as economies develop and thievable consumer goods start appearing in the home. Yet since the Chubb deal was announced, and despite buy recommendations from Kleinwort Benson among others, the stock has drifted downwards, losing nearly 10 per cent of its value since the start of the year. It closed on Friday at 3141/2p, and a cheaper defensive purchase will be hard to find.

The same ill wind has afflicted FKI, and punished the firm for improving its margins and restructuring its portfolio of assets in the 1990s rather than growing its existing businesses. In a bullish note this week from UBS, analyst Peter Reilly notes that three quarters of the firm's sales of electrical machinery under the Hawker Siddeley and Marelli labels are into markets where it has over 30 per cent market share. He sees margin growth. The company has also suffered in the wake of its unsuccessful tilt at engineer Newman Tonks, and because of reorganisation costs of pounds 20m, revealed last month. Another defensive purchase at 186p.

This week the partners of J Rothschild Assurance were celebrating windfalls of up to pounds 146,000 as it reversed into St James's Place Capital. At the same time the Pru moved in to snap up another 10 per cent of St James, bringing its holding to 29.9 per cent, a level which it says it will maintain for now. The implications for the Pru are positive: access to a high net worth clientele, and a healthy profits stream in a few years' time. Coming so soon after the company's successful bid for Scottish Amicable, Sir Peter Davies is clearly attempting to demonstrate he is worth his pounds 621,000 a year. However in a year when the demutualisation of Norwich Union, Halifax and Alliance and Leicester will flood the market with financial services paper, the sector may behave in a funny way, with funds switching out of the Pru to keep their weighting correct. Short-term money may want to exit at this point. The shares closed on Friday at 566p

It has been a rotten week for British Steel. The market believes that Europe's largest producer will see its profits halve to under pounds 200m compared to last time as a result of sterling's strength against the mark. The shares have dived over 10 per cent in the last two weeks. In light of this SGST says buy on yield of 6.7 per cent. Such a strategy is risky in the short term, particularly as British Steel may not have reached the bottom of its cycle. If you have them, hold, and if you do not have them, wait until after the election in the hope that the new government will be slightly more forthcoming on the single currency and stabilise sterling as a result.

The week didn't close as happily as it might have either for Grand Met, whose shares dipped 2p on Friday's trading to 499.5. This in spite of the news that day that it was selling two of its European dessert food businesses, Brossard cakes and pastry in France and Fida cake in Italy, for an estimated pounds 50-80m, in order to concentrate on its brands like Green Giant vegetables, Haagen-Dazs ice cream and Pillsbury baked foods. And in spite of the view recently put forward by analysts at Merrill Lynch, no less, that Pillsbury - representing 49 per cent of its parent's turnover and 41 per cent of its profit - remains an undervalued business. Pillsbury, Merrill points out, has undergone large-scale restructuring , like many other US food companies, and has started generating more cash and re- investing it in more intense marketing, increased brand support, and boosting profits. Not only does all this mean Pillsbury is performing better than most of its American peers, says Merrill, but over the next two or three years, it's likely to become Grand Met's fastest-growing subsidiary - and a more significant influence on its share price. A message well-worth noting, perhaps - because it may not quite have sunk in yet.

RICHARD HALSTEAD

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