Stock Market Week: Rank is caught between a Hard Rock and a soft share price

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The Independent Online
New chief executives, called in to revitalise a company, often take a long time to deliver. Indeed, shareholders of the slumbering Sears retailing group are still awaiting the benefits of Liam Strong's arrival five years ago.

When he was recruited from British Airways the shares of what has for long been regarded as the Cinderella retailer were bumping along at a depressing 100p; they are now 83p.

Andrew Teare, enticed from English China Clays, must be uncomfortably aware of the long, so far unrewarding battle Mr Strong has waged.

True, he has been chief executive of the Rank Group - one of his first moves was to shed the long-standing Organisation part of the title - for less than a year.

But during that time Rank shares seem to have caught the Sears complaint - stubbornly refusing to join the fun experienced by a record-breaking stock market. They were nudging 550p when Mr Teare followed Michael Gifford in April. The price finished last week at 411.5p.

Figures, due this week, are not expected to offer much encouragement. Towards the end of last year Rank produced a trading statementseen in some quarters as little more than a profit warning. So around pounds 300m seems the most likely outcome against pounds 272m in the previous year.

A surprising slowdown at the Hard Rock Cafe chain, regarded as Rank's profits kitchen, created trading indigestion. There were signs the problems were short-term. So in an era when any half-decent catering concept gets the cash tills ringing, the upmarket beefburger business should be back on the up road.

Mr Teare, of course, has time on his side. His policy is still being implemented; the benefits should emerge later.

But the market is anxious. As NatWest Securities says, "What is absolutely critical is that Rank gets itself back on a growth tack."

The Teare revolution has not, of course, been confined to a name change. The Shearings coach holidays operation has been sold for pounds 83m. And another pounds 300m of assets are due to go.

One could be Rank Film Distributors, with a library of hundreds of classic British films and one of the best-known symbols in the country - the man with the gong. Even after the sale Rank will remain an important film company, with Pinewood Studios and the 300-plus screen Odeon chain.

Mr Teare wants to concentrate on four core areas, the Hard Rock Cafes, holidays, leisure and film services. It is not all one-way traffic - Rank is a buyer as well as a seller. It splashed out pounds 96m for the Tom Cobleigh pubs chain and has signalled that it nurses casino hopes in the United States.

In a sense Mr Teare adopted one of the ambitions of John Davis, who ruled Rank with an iron hand when it was largely a showbiz enterprise. He displayed a taste for drink and wanted to bid for the old Watney's brewing and pubs group; an aspiration he had to shelve because of opposition from trusts related to the group's Methodist founder, the legendary J Arthur Rank.

One quick fix Mr Teare could offer is the sale of Rank's remaining 20 per cent interest in Rank Xerox, the photocopier group. Such a deal could produce around pounds 1bn, increasing the chance of improving shareholder value through a share buy-back or special dividend. But he seems in no hurry. At one time the sale was planned for the early part of this year. Now it seems to have been put back to late next year.

Developing such a hotch-potch of interests will be a time-consuming exercise and the market will have to display patience. But as any hard-bitten professional knows it is reluctant to take prisoners and Mr Teare cannot allow Rank shares to continue to underperform.

It could be argued that the market last week highlighted the Rank weakness by finding yet new peaks.

International investment houses appear to be rather less relaxed about share prospects than many of the home-grown variety.

For example US group Goldman Sachs would be underweight in UK shares, suggesting Footsie will be little changed at 4,240 points in a year's time. And Daiwa, the Japanese group, says it would be "sharply underweight", although it is looking for Footsie at 4,400 at the end of this year.

There is little doubt the remarkable strength of New York has helped the market face the looming election in a calm frame of mind. There is a deep suspicion that without the soaraway performance of the Dow Jones Average the Footsie display would have been much more subdued.

Indeed the gap between the two indices is yawning wider and wider, illustrating that Footsie glee is restrained by the political uncertainty.

Sterling's strength has been another inhibiting influence; so has the will-he, won't he interest rate conundrum.

NatWest, one of the optimistic UK houses, says: "While we are happy to be bullish on a 12-month view Footsie has probably run too far, too quickly. There will be better opportunities to buy the market between now and the first Labour Budget." The securities house is on a 4,600 Footsie by the year-end.

Other blue chips reporting this week are Barclays and SmithKline Beecham. Lloyds TSB got the banking profits season off to a fine start and Barclays, figures tomorrow. should keep up the pace with a 17 per cent gain to pounds 2.45bn. There could also be developments such as splitting the banking and investment sides.

SmithKline, also tomorrow, should also impress. The drugs group, with a pounds 24.3bn capitalisation, is the latest to find that sheer size is no protection from takeover speculation. But tomorrow it should be able to dismiss barmy thoughts of a bid from Roche, the Swiss group, as it produces profits up some 15 per cent to pounds 1.56bn.