Outlook: Racal doll

RACAL ELECTRONICS is the corporate equivalent of a Russian doll. The business keeps on shrinking as Sir Ernest Harrison sheds yet another persona. And yet just when it looks like disappearing altogether, the wily old bird discovers another store of hidden value for investors to feast on.

The emergence of Vodafone from Sir Ernest's belly will go down as one of the cutest discoveries ever witnessed in the City. But the sale of Chubb and Racal Telecom also surpassed expectations. Now, Racal's defence arm is on the block while its satellite vehicle tracking business is heading for flotation. Shareholders have been fabulously served by the Harrison technique. Anyone who invested pounds 1,000 in Racal in 1961, the year it came to market, would now be sitting on pounds 14.9m, supposing they had reinvested their dividends and hung onto their Vodafone shares.

The sale of the defence electronics business will cut what is left of Racal in half. The most likely buyer is Thomson CSF and although the French are not short of money, they do not pay silly prices, as GEC discovered when it auctioned Marconi.

The valuation on the satellite tracking business, Global Telematics, is anyone's guess. The joint venture makes no profits and its sales are piddling, but it is a telecoms business and if the frenzy lasts, then Sir Ernie reckons a flotation could easily raise pounds 200m.

Anyone who is tempted to think he will turn out the lights and retire gracefully after these two deals has probably misjudged their man. Sir Ernie believes he has unearthed another hidden treasure in the shape of Racal's security arm. Its core business, bank card payments, is not exactly glamourous, but the Racal chairman reckons it might be worth another billion. After 33 years of getting it right, who would bet against him being wrong?