Stock Market Week: Shell companies still have their attraction

THE STOCK market may be in turmoil but trading in shells, one of the City's time-honoured exercises, continues to flourish. In the past month two have arrived and others are thought to be in various stages of fulfilment.

Shells are companies with little, if any, trading operations. They often have cash in the bank, but their prize asset is their share quotation.

For a variety of reasons it is often cheaper, easier and quicker for an unquoted business to come to market via a shell than to indulge in a full-blown flotation.

Even stockbrokers have adopted the shell route. Earlier this year Teather & Greenwood reversed into NRC, a little property group, and last month Ellis & Partners picked the quaintly named Captain O M Watts, once a well-known yacht chandler, for its market debut.

The strength of both stockbrokers is their involvement in small companies and they are accomplished at alighting on suitable shells and arranging reverse takeovers.

Teather, in the market, is still known as NRC, but Ellis, which merged with Clifton Financial, a small company adviser, is now Talisman House. Both Teather and Ellis are traded on AIM.

The Stock Exchange, for some unexplained reason, has never fully accepted the shell business. At times it has seemed intent on putting an end to it. But although it has become more refined over the years and adjusted for changes in the rules the shell practice, with a few hiccups, has survived and generally prospered.

Footsie is not immune from the shell approach. Carlton Communications, the television group, came to market via a little company which published the Fleet Street Letter tip sheet and the likes of Tomkins and the now disbanded Hanson conglomerate more or less grew out of shells.

PizzaExpress, a mid cap constituent, emerged from an unsuccessful computer group under the direction of Luke Johnson. The former City analyst, the son of writer Paul, loves the shell approach but has not always hit the jackpot.

PizzaExpress, however, has had an outstanding, run moving from the equivalent of 96.5p to hit 950p. It closed last week at 601p.

His latest shell (in more ways than one) is Belgo, a former property concern. He pumped two Belgian beer and mussel restaurants into the obscure company and since added five of London's top eateries.

At one time shells were mainly plantation companies. These relics of empire limped along with share quotes, but little else, having been stripped of their operations as colonies gained their independence.

They often exerted their nationalist pride by taking over, usually paying for the privilege, the plantations.

One of the available shells is an old plantation company, Dalkeith, once operating in Sri Lanka. It has experienced several incarnations. The last role was unsuccessful pub operator.

It sold its little chain and with cash in the bank awaits a reverse takeover proposition by a prosperous unquoted group. Its shares are 27.5p, giving a pounds 1.3m capitalisation.

Delyn, cash rich with some property interests, is regarded as another; its shares are 95.5p providing a rather more impressive pounds 8.3m price tag.

Others looking for substance include Grosmont (2p and pounds 2m) and Cambury (2.25p and pounds 34m).

Hartford is a new breed, a specially-created shell. Its shares are suspended at 2.75p while it completes the reverse takeover of one of London's latest trendy restaurants, The Pharmacy, in a deal billed as worth pounds 10m.

Most shells these days reside on AIM, although some likely candidates exist with full listings.

Investors can reap rich rewards. But a few words of warning; a reverse takeover often requires a heavy cash call and shareholders can be sharply diluted. And the revamped operation may be a disaster. Shells litter the corporate graveyard and many which survive with their new yoke merely limp along with little real future until they, perhaps, find another reverse takeover.

Shells do not feature in this week's profits schedule, although Daejan, once a rubber planter now a property group and valued at pounds 243m, holds its yearly meeting on Friday.

Enterprise Oil, with half-year figures, heads the list; it will have to battle to stay in the black. BT Alex.Brown's Caroline Cook expects an 88 per cent decline in clean net income to pounds 8.6m.

The slump in the crude oil price is responsible for much of the woe afflicting Enterprise and the rest of the oil industry.

The building industry is well represented. House builder Persimmon is expected to produce interim profits of pounds 28m (against pounds 23.3m); Marley, now a building materials group, should manage half-time figures of pounds 26.5m (pounds 24.5m) and Graham, the builders merchant, is thought to be set for interims of pounds 11m (pounds 8.3m).

Wickes, the once troubled group which is both builders merchant and retailer, should produce its first profits, albeit interims, since it was hit by an accountancy scandal three years ago. Around pounds 11m against a pounds 14.7m deficit is expected.

AMEC, the construction group, is another on the agenda; it could manage pounds 21.5m, up from pounds 16m.

Other interims are due from packaging groups Jefferson Smurfit and Bunzl. The Irish-based operation could manage Ipounds 100m against Ipounds 61m and Bunzl should produce a modest improvement at pounds 63m.

Fashion retailer Monsoon with year's figures is thought to be on target for pounds 28.6m against pounds 25.4m. It floated in February.