Stormy weather forecast for P&O
Sunday 31 March 1996
Meanwhile the container shipping business is as cut-throat as ever, and the Channel Tunnel can only increase pressure on the ferries business. The upside looks limited and any let-up in the rocketing demand for cruises could make P&O distinctly sick. Steer clear.
THE big electricity generators, National Power (467p) and PowerGen (534p), have hardly been the headiest investments in the year since the Government offloaded its remaining 40 per cent stakes in each.
The shares have risen only around 10 per cent but Michael Cohen of Salomon Brothers, who reckons they are now at least 38 per cent undervalued, rates them both a strong buy. He expects both their bids, for Southern Electric and Midlands Electricity respectively, to be cleared by the Monopolies and Mergers Commission and to be earnings enhancing. But even if they are not, the generators will embark on juicy share repurchase or special dividend programmes that should boost the share price. Even the political risks are manageable: a windfall tax from a future Labour government would be pounds 200m maximum, which is easily containable. Buy.
LADBROKE shares (1941/2p) have been buoyed by talk that it may become the next takeover target in the leisure sector. Buying on these rumours alone is foolhardy, but the outlook on fundamentals remains encouraging as the recent upbeat trading statement indicated. On Friday the group announced pounds 50m of property sales, part of a programme to dispose of its commercial property programme and focus on core betting and hotel activities.
Future growth is set to come from the highest level of management contracts gained by the Hilton International hotel chain since it came under Ladbroke's wing. Last year Hilton signed up 14 new contracts, and an additional 22 hotels are earmarked for opening by 1998. The gaming side is also recovering as the novelty of instant-win scratch cards wears off. The introduction of slot machines into betting shops this year could add pounds 7m to the bottom line. Brokers forecast pre-tax profits of at least pounds 160m this year, rising to beyond pounds 190m next, implying a p/e ratio of 20 falling to 17. Still attractive.
"IN A highly competitive retail market, William Morrison (1561/2p) lacks scale and will find life increasingly difficult." That is the damning verdict from broker BZW after the Bradford-based supermarket chain's annual results last week. Short-term growth prospects are limited as Morrison has failed to acquire any sites for opening this year. By contrast, local rival Asda is opening 10 hypermarkets in 1996, and Tesco up to 20 stores. Underlying sales growth of 2.9 per cent was disappointing and remains on a downward path.
A bid is unlikely as chairman and major shareholder Ken Morrison shows no signs of giving up. The broker thinks a forward p/e ratio of 15 is too high and the shares should be sold.
ENTERPRISE OIL shares, now at 438p, have leapt 13 per cent since it announced higher-than-expected 1995 net profits of pounds 101.5m two weeks ago. The group, the UK's biggest independent oil and gas explorer, has recovered from its failed bid for rival Lasmo and doubts about a future production plateau. Output last year exceeded 200,000 barrels a day for the first time and brokers have raised 1996 profit forecasts to between pounds 115m and pounds 120m.
Enterprise is still showing what broker Charles Stanley calls its exploration "Midas Touch", with the go-out-and-find budget rising to pounds 130m this year from pounds 105m last year. New fields coming on stream in the UK, coupled with strong growth potential from Norway and Denmark and encouraging results from Italy, mean the production outlook looks good. Per barrel costs also show excellent progress.
Analysts at Goldman Sachs have a 465p target for the shares this year, meaning there is still more mileage in the stock on a medium-term view.
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