Stock market week: Granada makes a handsome profit from sitting on Forte's trophies

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When Granada emerged victorious from the thunderous battle for control of the Forte catering and hotel group early this year the stock market was convinced a string of hasty sales would quickly follow.

After all, the pounds 3.9bn takeover severely stretched the leisure group and, ran the conventional wisdom, it had to sell Forte assets as quickly as possible to prevent its borrowings getting out of hand.

But the maker of the Coronation Street soap opera has, not for the first time, wrong-footed the stock market.

Sales have been conspicuously slow to materialise as Granada has discovered, against a low interest rate background, there is no need for hurried disposals and it could bide its time in the pursuit of wringing a few extra pounds out of each deal.

So not a great deal has been unloaded. A portfolio of country hotels went for pounds 121.7m to Regal Hotels and Mohamed Al Fayed, the Harrods chief, took time off from his battle with the Home Secretary, Michael Howard, to snap up 25 per cent of Alpha Airports, the aircraft services group, for pounds 52.4m.

He has since moved to nearly 28 per cent. Granada has also sold some pre-Forte business, such as the Spring Grove linen hire company, for pounds 136.5m.

It could be argued the Alpha deal justified the softly, softly approach as Granada collected 125p a share, a sharp premium to the then ruling market price.

So most of the Forte trophies ear-marked for sale remain in the group's ownership. Talks are going on - but it is perfectly clear Granada is in no hurry. The upmarket hotels, expected to be early casualties of the debt mountain, are likely to be sold, probably in lots, early next year.

Control of the Savoy Hotel chain remains with Granada, although some suspect a deal may be near.

And Welcome Break, the motorway service stations expected to the subject of the first sale, is still part of the Granada empire.

Chairman Gerry Robinson has in the meantime pushed up margins, particularly in the service stations and budget hotels.

Fraser Ramzan at the Lehman Brothers securities house expects profits this week to emerge at pounds 451m with share earnings up from 39.1p to 40.9p.

He ponders the future of a pre-Forte asset - the group's 10.8 per cent shareholding in BSkyB. The stake is worth more than pounds 900m at the current BSkyB price. It is in Granada's books at pounds 80m.

Granada could, of course, reap a rich reward by selling the stake; it could even do a Rupert Murdoch and raise loans against it. There is also the prospect, put forward by Mr Ramzan, that the BSkyB shares could be distributed among Granada shareholders.

Certainly, BSkyB offers Granada the ammunition to launch a bid for Yorkshire- Tyne Tees TV, of which it has 27 per cent and would like full control. Since the broadcasting open season was declared at the start of the month, corporate action has been surprisingly absent.

Could Granada once again wrong-foot the market by accompanying this week's results with the long-awaited strike at Yorkshire? Or, more audaciously, shoot for Manchester Utd?

After all, it announced its Forte bid with its yearly figures last year.

Its shares have been strong since the Forte acquisition; after a 629p low in January they ended last week at 889.5p, near their peak. Mr Ramzan sees them at 950p.

Although Granada shares are riding high, the rest of the market has faltered after hitting a record nearly a month ago. Yet New York has soared resolutely to new highs, increasing the yawning gap between Footsie and the Dow Jones Average.

Interest rate worries, the rampant display by sterling and political uncertainties have eroded confidence. Even so, there is a strong body of opinion suggesting that shares will enjoy their traditional Christmas spree.

The run-up to the festive season is often a jolly time for share prices although trading volume is thin, providing little in the way of Christmas comforts for the traders who struggle into the City during the Christmas holiday.

As is so often the case, the market has not performed to expectations. There was, after last year's takeover stampede, expected to be a rush of deals this year. But bid action has not been particularly heavy.

It was felt the market would perform well in the first six months and then fade in the second half. In the event the second six months have been more lively than the first.

Strategists expecting a sober end to the year include Mark Brown (ABN Amro Hoare Govett), who is looking for Footsie to end at 3,700 points; Ian Williams (Panmure Gordon) with 3,800 and Bob Semple and David McBain at NatWest Securities on 3,900.

Among other results due this week are interim figures from Storehouse. Its shares are bumping along at their year's low. Tony Cooper at Greig Middleton expects pounds 36m (pounds 33.3m) before exceptional charges.

Half-year figures from Vodafone should be up from pounds 202m to pounds 230m but National Power has already indicated its interim figures will be down and the market is looking for around pounds 210m against pounds 254m.

EMI, the showbiz group, spins its first interim profits performance since its demerger from the Thorn rental side. NatWest is looking for pounds 97m against pounds 105.8m.

It is clear that the music industry is having a poor year and sentiment was unsettled by last month's profit warning from rivals PolyGram. The failure of the expected predator to appear has also contributed to the poor performance by the shares.

Among others on the interim results schedule this week are Cable & Wireless, where pounds 660m against pounds 616m seems likely, and Safeway (pounds 230m against pounds 215.2m). Unigate should manage pounds 55.5m (pounds 60.4m) and Northern Foods pounds 58m (pounds 57.2m).

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