Stock Market Week: Internecine warfare adds to uncertainty dogging WH Smith

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The Independent Online
WH Smith, the 205-year-old retailing group feeling the heat of institutional dismay, could hold centre stage this week. Tomorrow it is due to produce yearly results and under normal circumstances could be expected to outline its plans, even offering a few hints where it is going.

But normality is something which has deserted the famous old newspaper distributor. It is operating in something of a power vacuum without a chief executive and with four internal candidates jockeying for the top job. There also appears to be one outsider, ex-Burton director Stuart Rose.

Bill Cockburn, the former Post Office chief called in to shake up the bewhiskered group and redefine its future role in Britain's fiercely competitive and ever changing retail industry, has quit.

He announced his departure in June but was expected to remain at the struggling group until October when he joins BT as head of its domestic operations.

The Cockburn desk was, however, vacated at the beginning of August. Insiders paint a gloomy picture of life at the top without Mr Cockburn or a replacement.

The group, they say, lacks strategic direction. And the four internal candidates can hardly be expected not to take every opportunity to improve their chances. Each has supporters within the group which has, in effect, led to factional infighting.

Chairman Jeremy Hardie is the stop-gap chief executive, running the company as well as being involved in the selection procedure.

Sean Eddie, John Richards and Nathan Cockrell, the retail team at NatWest Securities, say although the search for a new man at the top may not be concluded for another month "the effects of the current internecine fighting may be felt more immediately as well as over the next few months".

NatWest expects profits to come out at pounds 125m. In the previous year, as Mr Cockburn indulged in a sweeping reorganisation, Smith suffered its first loss, a not insignificant pounds 194.7m.

Although the shares have fallen sharply from the heady days when the Cockburn presence inspired confidence, they have enjoyed the occasional flurry as takeover hopes have surfaced.

Two stories go the rounds. One is a break-up bid, an adventure which would not be easy to accomplish at a profit. Still, some fund managers think breaking up is the option Smith's management, when in place, should explore. One of the company's directors is rumoured to be in favour of a dismantling exercise.

What could have been the first move in any break-up was attempted when Virgin recently offered pounds 135m for Smith's 75 per cent of the Our Price record chain. Virgin holds the balance. The proposal was rejected by Mr Cockburn. The other recurring yarn is an old-fashioned takeover, with Tesco itching to provide the predatory action.

The superstores group is anxious to develop its Metro-style outlets. It has become impatient with the slowness of piecemeal expansion and sees, it is said, the Smith chain as a short cut to achieving its goal.

There is some debate whether Tesco would keep or sell shops and parts of the business which would not fit its Metro ambitions.

Last week was again volatile for equities, with Footsie experiencing another fraught Friday. Significantly, the revival in the second and third-liners also faltered. The hesitancy is a blow to fund managers who specialise in small companies and the army of private investors who feel drawn to the market's under-card.

Hugo Deschampsneufs, chairman of little Athelney Trust which specialises in smaller businesses, is happy to report a 23.6 per cent asset value increase but dismayed at the big-is-beautiful attitude of large institutional investors.

He complains institutions are preoccupied with blue chips. They have alighted on big companies because they feel "a bell will sound for the end of the bull market at which point they sell and walk away with a large gain - something they could not do with illiquid, small companies".

He adds: "I think that this strategy is flawed and many of them will not succeed in spotting the time when it comes."

As for blue chips, Goldman Sachs, the US investment giant, has become more positive although its market rating has merely moved from underweight to neutral.

It points out that London remains "the most inexpensive market in Europe" and the "relative valuation picture has become more compelling as market performance has lagged behind the Continent".

Goldman sees Footsie in a year's time standing at 5,000 points. NatWest says it is cautious about the remainder of this year, shooting for a year- end 4,600, but is on 5,100 for next August. The most bullish 12-month forecast comes from Dresdner Kleinwort Benson - it shoots for 5,450.

Although Smith is the only major company with figures tomorrow the traditional blue-chip reporting day, Thursday, offers Ladbroke, Reckitt & Colman, Rolls-Royce and T&N.

The betting to hotel group, fresh from its 49's fixed-odds game success against Camelot, should gallop in with a 30 per cent advance to pounds 95m at the interim stage. Gaming should provide much of the impetus.

Reckitt & Colman's six-month figures are likely to be much less impressive. A pounds 5m or so decline to around pounds 160m is the expectation.

Now shorn of traditional lines like Colman's mustard and Robinson's barley water the group concentrates on such areas as pharmaceuticals and toiletries.

It is one of the market's old takeover chestnuts - Unilever is the current favourite to pounce. Chief executive Vernon Sankey is used to the rumours which have abounded, since he joined R&C in 1971.

Rolls-Royce, the aero engine group, is likely to produce interim profits comfortably higher at pounds 131m against pounds 79m and engineer T&N should offer six-month figures of pounds 68m, down from pounds 85m.