Well packaged for wider margins

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The Independent Online
ALREADY on a premium to the paper packaging and printing sector, British Polythene Industries deserves a higher advantage, according to veteran analyst Thorold Mackie at Bell Lawrie White.

He notes that other forecasts have been rising to meet his prediction of pounds 24m for the current year, which puts the company on a price/earnings multiple of 14. That is only a 5 per cent premium to the sector, for a company with an impressive growth rate over the last couple of years and a 25 per cent share of its principal market.

At the same time, the polymer price appears to have peaked, which creates scope to widen margins. With a yield of 3.9 per cent, this looks attractive at 592p.

THE power supply is an extremely basic and unglamorous part of any electrical appliance. The world market for these components is still highly fragmented and, arguably, ripe for such market leaders as there are to grow fast.

One of the two leading players, with a 6 per cent share, is the British company Unitech, with sales equally divided between Europe, the Far East and North America. Recent results have shown considerable turnover and margin improvement, but the share price is not yet up with events, say the BZW electronics research team.

The Japanese subsidiary, Nemic-Lambda, has enjoyed further strong sales growth in the last few months and manufactures mainly abroad to avoid the problems of the yen's strength. The prospective multiple, at 17 times, is a touch high and the yield at 2.2 per cent low, but the strong trading environment and earnings growth means there is plenty to go for. Buy at 395p

CABLE & WIRELESS attracted attention this week with the announcement of the terms of its acquisition of 45 per cent of the German mobile phone company Vebacom.

According to Paul Norris at BZW, the price of pounds 490m in new capital today and pounds 335m of deferred payments matching Vebacom's investment needs is a full price. However, Vebacom's losses are lower than anticipated, and Mr Norris is a buyer at 417p and above.

A contrary view, however, is that Vebacom is a pricier way into a German market that is just about to deregulate and fall victim to fierce competition. That, however, just goes to suggest that C&W, with an odd ragbag of telecoms businesses, must ultimately be a takeover candidate. All good reasons to buy at 430p, despite a valuation of 19 times earnings, which represents a sizeable premium to the market.

TAKE advantage of the current weakness in construction shares to build up a holding in what is arguably the best-run housebuilder in Britain, say NatWest Securities about Berkeley Group, in the wake of some middle of the range results.

The shares at 357p are valued on a multiple of 10.5 on Nat-West's forecast of pounds 39.5m profit before tax in 1995/6. That valuation represents a discount of a fifth to the market.

True, further currency weakness could mean higher interest rates and yet more gloom in the housing market. But for those who are optimistic that the market will at least remain flat, then a company that is trading off 20 per cent more sites than last year should see better volumes and slightly higher profits. A buy at 357p - but only for house-price bulls.

THOSE less confident about house prices but intrigued by the recovery of Canary Wharf might like to look at British Land, whose skilfully negotiated acquisition of half the prime Broadgate development in the City of London gives it a highly geared exposure to prime City assets.

Yes, the Docks may yet give the City a run for its money where vast quantities of space are needed; but there are enough foreign bankers who insist on prestige and accessibility to their homes in Kensington to make grandiose buildings such as Broadgate a good bet.

Leading fund managers Schroders and Mercury are deeply committed to British Land. At a 15 per cent discount to the forecast net asset value of 464p a share, NatWest makes them a hold a least at 400p.

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