Trust in M&G to stay on track for growth
Sunday 02 June 1996
AFTER the spectacular rise last week of shares in Prism, the Southend and Tilbury railway service, which doubled from pounds 1 to pounds 2.05, it is clear that attractive new issues go to a premium. The shame is that private investors nearly always get left behind.
So the placing this week from European Telecom of 9.56 million shares at 115p each to raise pounds 6.5m begs some questions. If Prism - a relatively staid business - can double on the first day of dealings, what price this company? Sales have grown from pounds 170,000 when it was founded in 1990, to pounds 78m for the year to 31 March 1996. European Telecom is coming to the market at a pricey p/e of 28.75 times last year's earnings. Its business is supplying mobile phones and ancillary services to business. Can it maintain these growth rates? Probably not, but if the company does even half as well over the next few years, it will amply reward investors. Of course, if you want to get your hands on some shares, it's probably too late - if the big boys think they're worth chasing. First dealings are on 6 June.
SHARES in William Baird, a textile manufacturer, have been stuck in a rut ever since the crash of 1987. No wonder. Long-suffering investors have had to put up with a dividend of 5.35p since 1991 - that is, until 1995, when it edged up to 5.8p. But that may be a hint of better things to come. New chief executive John Green-Armytage has a reputation as a marketeer, who will focus more on branding. Also, the company is committed to improving cash flow, which has been chronically weak over the years. The ground seems to have been laid for an upturn; stockbroker BZW rates the shares (209p) a buy. It has a case.
SNIFFING out good recovery situations has always been a way to earn good returns - if, as ever, you pick the right recovery. After all, a business can go downhill because its markets are in long-term decline.
However, that is surely not the case with Inchcape. A powerful international presence as a car distributor, taking in the fast-growing Asian market, would suggest that prospects can improve.
The company was ignominiously booted out of the FT-SE 100 index last year, after it ran into the buffers. The shares, at 306p, still suffer from that demise. But there are good grounds for optimism. Inchcape's recovery rests on growth in its margins. On a 10-year average of 4.25 per cent, they are less than one-third of the market average. Analysts reckon margins will remain at 3 per cent over the next two years - still 30 per cent below the long-term average.
Unless management has lost touch completely, there is every prospect of a stronger recovery than these gloomy figures suggest. NatWest Securities sees a rebound in Japanese car makers that will benefit Inchcape. Time for a rethink: buy.
ANOTHER tactic is to follow a proven operator. In this case it is Adam Page, who built up Grosvenor Leisure, which he sold in 1984 to Whitbread for pounds 7.4m, followed by the pounds 72m sale of his Midsummer Inns to European Leisure.
He has now arrived at Springwood (733p), which has bought the leisure operations he has developed since Midsummer. Springwood is paying pounds 8m, with pounds 1.1m in cash, to leave Mr Page with 41 per cent of the equity. He wants to concentrate on large capacity venue bars, which he sees as an under-exploited concept.
The omens look good for another touch of Midsummer magic. The shares are already discounting the Page effect, but with good asset backing, they are worth a look.
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