Stock Market Week: CSFB sees `hidden value' at Granada

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The Independent Online
GRANADA, the leisure and media group on this week's profits reporting schedule, is one of 28 shares in an intriguing European portfolio put together by CSFB.

The investment house's researchers have sought out companies with strong and strategic franchises and a record of high returns that are currently suffering the indignity of being undervalued.

The selection is heavy on technology and includes three fixed-line telecom groups but, interestingly, no mobile phone operator. It displays a liking for domestic banks but little interest in basic industry. Besides Granada there are nine British shares, ranging from Footsie constituents British Aerospace and Diageo to mid caps Ocean, a transport group, and FirstGroup, the bus and train operator.

CSFB - Credit Suisse First Boston - took over the Barclays de Zoete Wedd securities business a year ago and the appearance of a European portfolio is, no doubt, a natural development for what is now a more wide ranging international operation.

Granada, says CSFB, justifies a higher share rating, "particularly given the resilience of earnings against a deteriorating economic environment". Value is hidden in its spread of operations, with television and contract and motorway catering singled out for mention.

"The conglomerate perception of the group disguises (and in our opinion undervalues) the importance of the media division in particular, where Granada is the number one broadcaster and programme maker in the UK outside the BBC."

In the stock market, Granada's main claim to fame is the epic pounds 3.9bn battle for control of the Forte catering and hotel chain. It has often displayed predatory instincts and has splashed out pounds 5.9bn on acquisitions since l993.

Unwanted assets, often picked up during the spending spree, have been unloaded although sometimes it appeared to play the waiting game with mystifying patience. Disposals in the last 30 months total pounds 2.4bn.

Hotels still represent the largest earners, pulling in 35 per cent of operating profits compared with media's 25 per cent. Roadside restaurants and contract catering account for 29 per cent. CSFB sees Granada producing profits of pounds 727.1m this week, up from pounds 650m. The consensus forecast is pounds 732m, although Warburg Dillon Read is shooting for pounds 792m.

Lehman Brothers is more cautious. Its Granada expectation is pounds 718m and it frets about hotel trading, suggesting some weakening in turnover is being experienced.

It is possible the leisure group will announce a few more sales with its figures. Some hotels are thought to be regarded as peripheral operations and it still has 4.28 per cent of the satellite television station BSkyB, a stake which is looking increasingly incongruous as the two clash on the digital TV front.

The shares ended last week at 851p; they have under-performed after hitting an 1,170p peak earlier this year.

Last week was an outstanding one for many Footsie stocks, although Granada was one which failed to join fully in the fun. It was, however, much less exhilarating for the rest of the stock market, which did little more than mark time. Footsie rose more than 250 points to 5,717.5, highest for 14 weeks.

The blue chip index is, of course, heavily influenced by financials and if there is one market rumour which refuses to die it is that a round of bids and deals among the banking and insurance fraternity is on the way. The upsurge means year-end Footsie forecasts of 6,000 points no longer look daft. Dresdner Kleinwort Benson is one looking for 6,000.

EMI, the showbiz group, is also reporting figures this week but its interim results are likely to be decidedly off-key. After two profit warnings, the market expects a sharp fall, perhaps to pounds 55m against pounds 75.6m last time.

The world music scene is not as happy as it once was and EMI has struggled as sales have come under pressure. Its shares have had a dismal time. Although the deteriorating trading outlook has taken its toll, it is the lack of takeover action which has sent them spinning from the equivalent of 738p to 312p when Footsie hit a year's low last month.

But hope springs eternal and on Friday, in frenzied late trading, the shares surged 16.8 per cent to 392p with Rupert Murdoch said to be on the prowl.

Airtours, the holidays group, is another checking in - it should produce year's profits of pounds 140m against pounds 120.3m. Tate & Lyle, the sugar group where takeover hopes also swirl, has year's figures on offer, say pounds 155m compared with pounds 152.3m.

Utilities will again make a significant contribution to the week's proceedings. Interim figures are expected from National Grid and the market is looking for pounds 200m which would represent a pounds 26m fall. National Power, postponed from last week, is another likely to offer a half-time shortfall; around pounds 210m is the expectation against pounds 254m. Severn Trent's interims should show a modest advance of around pounds 2m to pounds 193m.

Like National Power, the engineer Siebe is on the reporting list for the second week running. NP put back its results, prompting speculation that it wanted to accompany the figures with a major deal.

Siebe's double seems to stem from a mix-up. Although the delay has prompted a little unease the group is still expected to achieve the expected 13 per cent gain to pounds 246.5m.

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