Ransomes saves the day

Independent writers offer their selections for the year and reflect on the results last time
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OUR stock market tips from this time last year have produced an average increase of 20.9 per cent and outperformed the FT-SE 100 index of leading shares by 31.2 per cent, writes Patrick Hosking.

Very gratifying, but the average score conceals some disappointments. Only the inspired tip of Ransomes by Robert Cole prevented a rather more pedestrian performance.

Ransomes, the lawnmower maker that was almost bust a year ago, was one of the biggest risers of the year, rocketing 392 per cent from 13p to 64p.

It was a brave punt at the time. Debt gearing was 300 per cent, and the company had recently failed to pay a preference share dividend. But Robert believed that the change in management, the power of the Ransomes brand and the improving economic climate in the UK and US would turn it around. "If Ransomes survives, the rewards will be handsome," he wrote.

David Hellier's tip of Lonrho produced a useful 17.8 per cent capital gain. He correctly predicted that the shares would see some action as Dieter Bock normalised this most unconventional of companies.

Our tips of Trafalgar House, Compass Group, RTZ, TSB Group and Bowater all managed to beat the Footsie.

But we had three disasters - Costain, Pentos and Sidlaw. Costain hit an unexpected hitch at its US coal arm, now for sale. Pentos's problems with Athena, its poster chain which went into receivership last week, proved intractable . Sidlaw was hit by the weak performance of its oil services division. Such are the perils of share tipping.

OUR SHARE TIPS LAST YEAR Tipster Company Price Price Gain/fall 31/12/93 30/12/94 % Robert Cole Ransomes 13 64 +392

David Hellier Lonrho 129 152 +17.8

Roger Trapp Compass Grp 321 337 +4.9

John Phelps RTZ 810 827 +2.1

Simon Pincombe TSB Group 242 234.5 -3.1

Diane Coyle Bowater 455 435 -4.4

Patrick Hosking Trafalgar House 83.5 76 -8.9

FTSE 100 3,418.4 3065.5 -10.3

Jason Nisse Fisons 134 110 -17.9

Jeremy Warner Costain 28.5 21 -26.3

Helen Kay Cable&Wireless 522 376 -27.9

Terence Wilkinson Sidlaw 305 198 -35.1

William Kay Pentos 25 14.5 -42 Average (Not including FTSE) +20.9

Prices adjusted for share issues during the year Our flyers for 1995

THE USUAL health warning accompanies these, our share tips for 1995. They are an ad hoc selection, some of them high-risk, and in no sense constitute a balanced investment portfolio.

PATRICK HOSKING My tip for 1995 is Burnfield (72p), the West Midlands engineering firm. Its chairman, Brian McGowan, the man who built Williams Holdings into a billion-pound business, has always guaranteed interest in the shares - quite unjustifiably so far. Burnfield h as been a classic case of hope triumphing over experience: each year between 1990 and 1993 the shares rocketed, only to fall sharply back again on disappointment after disappointment. And last year, they couldn't even manage that, stagnating in the 60p-8

0p range.

So what's any different? Firstly, there's a new man in charge. Clive Snowden has now had a year to get his feet firmly under the desk as managing director, and he is beginning to see faintly encouraging signs in each of the three operating businesses.

Isopad, which supplies electrical surface heating equipment, returned to profit last year after the upheaval of a costly reorganisation. Pressure gauge maker Budenburg has started to recover from an appalling second half of 1993. And Malvern Instruments,which makes laser-based particle characterisation equipment (don't ask), has greatly improved sales potential thanks to the acquisition of a US distributor, APM.

Earnings in 1995 of 6.5p would put the group on a lowly rating of 11. Risky, but worth a punt.

WILLIAM KAY Stagecoach Holdings is the runaway leader in an industry - bus services - that the investment community still does not take entirely seriously. That is all to the good, for the time to get in is before growth prospects have been largely discounted.

Happily, that does not appear to have happened at Stagecoach, possibly because of the reputation it has earned as an aggressive acquirer of regional bus companies from London to deepest Scotland.

That has created the risk of regulatory wrath, as the Monopolies & Mergers Commission has launched a string of investigations into these deals. What is more, the response of Brian Souter, Stagecoach's chairman, has been the hair-raising one of operating buses in places as far flung as Colombia and New Zealand.

But no share is risk-free, and analysts at James Capel, Smith New Court and Albert E Sharp agree that profits will jump from £18.9m to £26m for the year to April, and £38m next year. That would bring the earnings multiple at the current price of 225p down to just 12 - a more than fair rating for a company that still has plenty of steam in it.

CLIFFORD GERMAN Fairline Boats makes playthings for rich men, and the company's shares make gambling chips for wealthy investors rather than widows and orphans. In 1990, the company made almost £5m on sales of £39m, and earnings of 88p a share. In the middle of the 1990 Boat Show, chairman Sam Newington revealed a bid approach, and the shares rocketed to 890p - only to slip back when the talks came to nothing.

Two years later, Fairline lost £500,000 and saw its shares sink to a low of 110p. The devaluation of sterling then gave export sales a lift, but Fairline's main markets in continental Europe were slow to recover. Profits doubled to over £1m in the last financial year, however, and trading prospects look good.

Last July, the Newington family sold a 29.9 per cent stake to the rival Renwick Group and undertook not to sell any of its remaining 25 per cent until February. The shares, currently 442p, are on a prospective 14 times earnings.

PAUL RODGERS Perhaps it was watching Sleeping Beauty on Christmas Day, but I think the Eurocurse on Euro Disney (136p) is about to lift. While the other Eurogiant, the Channel tunnel, still suffers from delays, breakdowns and fires, the Mickey Mouse theme park looks more serious.

The company had a miserable 1994. Attendance was down by a million to 8.8 million in the year to September. But Philippe Bourguignon, the chairman, is confident he can turn that around. Marketing is more carefully targeted and prices are to be cut by almost 24 per cent this spring. The park has changed its name to Disneyland Paris. A new £70m ride, Space Mountain, should attract even more visitors. Economic recovery on the Continent should help too.

Euro Disney has renegotiated a crippling contract with Walt Disney, winning a five-year moratorium on royalties and slashing management fees by two-thirds. The restructuring in June raised £735m, a quarter of it from Saudi Prince Al-Waleed, who did not get rich by backing romantic follies.

TOM STEVENSON My tip will almost certainly outperform the market - by a substantial amount if history is any guide. The technique I have used to select Redland (460p) is borrowed from Michael O'Higgins, a highly successful American investor who chooses stocks according to these three rules: 1. High-yielding shares of out-of-favour companies have often been oversold.

2. Choosing companies that will not go bust is a big factor in beating the market.

3. But in any given sector of the market, the highest-yielding share is likely to be underperforming for a reason and may well continue to do so. Avoid it.

Taking the FT-SE 100 stocks as the market's safest, Redland offers a 6.7 per cent yield and sound prospects for 1995.

RICHARD THOMSON I am plumping for South Wales Electricity. This is as much a recommendation for a sector as for a company. The Trafalgar House bid for Northern Electric has emphasised how vulnerable the regional electricity companies are to takeover oncethe Government's golden share expires at the end of March. Several RECs make tempting targets, and rationalisation of the industry looks likely to happen sooner rather than later. South Wales is one of the smaller RECs, making it an easier mouthful for potential predators than some of its larger cousins. The shares at 882p could have a long way to go.

NIGEL COPE Marks & Spencer (398p) is not a stock to send the pulse racing but 1995 could well see the Steady Eddie of the retailing world outperform the market. British retailers are finding the economic recovery as hard to manage as the recession, but no one is better placed to win the battle of the high street than M&S.

After hitting a 1994 peak of 459.5p, the shares have taken a beating recently but could be set for an upturn. The company is refurbishing its top 50 British stores and expanding others. It is also pursuing opportunities abroad, particularly in the Far East. And the financial services division is powering ahead.

One analyst recently said he expects M&S to become "super-profitable". The shares should respond accordingly.

JAMES BETHELL Wolseley (783p), the Droitwich-based plumbing supplies company, is the best-kept secret in the FT-SE 100. Led by the veteran chief executive, Jeremy Lancaster, it has an enviable ability to turn round foreign acquisitions and has become thelargest distributor in its field in Britain, France and America.

The shares have raced ahead from 250p to a peak 900p in the last two years, but I believe they have further to go. This year, Mr Lancaster is handing over the reins to John Young, the managing director, who will raise the company's profile. The upturn inAmerica should improve profits from last year's £202m to £250m this year and £275m in 1996.

DEREK PAIN Waverley Mining (108p), one of the best-performing shares of the year, is set for another exciting run. It has interests in Australia and North America and the added attraction of being a significant but unsung player in the reborn UK coal industry through Monktonhall Mineworkers and Mining Scotland.

The group is clearly not a share for the nervous but, with assets likely to exceed 250p a share, it has a solid base for growth.

JOHN SHEPHERD Regent Inns has produced plenty of cheer for investors since the shares came to the market in May 1993. Floated at 135p, they trade at 309p.

The company has adapted well to the changing retail environment for pubs. It has 44 outlets, but no two are the same, to tailor each new outlet to the needs of its surrounding trading area. Sales have been buoyant since the company reported a 72 per centprofits increase to £2.3m for the year to July. Profits should grow by at least 40 per cent in the current year.

DAVID HELLIER Bunzl, the paper and packaging group being reshaped by Anthony Hapgood, is one of the favoured shares of Richard Hughes, manager of M&G's recovery funds and Panmure Gordon, the stockbroker.

The company, heavily rationalised recently, is set for growth. Its management, which has made eight acquisitions in the last two years, is identifying and developing strong businesses and getting out of losers.

Profits should rise from £55.8m to £70m for 1994, putting the shares on 17 times earnings at 172.5p.

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