Williams spin-off to float to the top

CITY TALK

RECENT American research suggests MBOs and corporate spin-offs are a good bet for investors. The change from the protective parental embrace often emboldens management, while the fact their own money is tied up in the business means they are unlikely to take too many unwise risks.

For these reasons, keep an eye open for the flotation of Cortworth, a small engineering group, set for mid-November. It has three arms: specialist engineering, plastics and controls. The group has stormed ahead since management bought itself out of Williams Holdings in late 1993. Profits last year hit pounds 6.4m on sales of pounds 58.3m. The directors are forecasting a 1995 operating profit of pounds 8.5m. The issue should raise over pounds 30m.

UNDER the title "McCheap", broker BZW rates property company Scottish Metropolitan a strong buy. Analyst David Nighy says the company has all but finished a retrenchment to its home turf in Scotland and the north of England, where its local ties should give it a competitive edge.

Healthy profits should see the dividend grow at 10 per cent a year over the next two years. At 73p, the shares trade at a 27 per cent discount to the net asset value, against a sector average of 18 per cent.

WHEN City Talk previewed Smiths Industries' (574p) results last week, analysts expected good figures in a range of pounds 135m to pounds 139m. In the event, the figures came in at the top end, with pre-tax profits of pounds 138m.

What sets the medical equipment-to-aerospace group apart from most of its peers is a remarkable ability to generate free cash. For example, it began the year with net debt of pounds 21m but ended it with net cash of almost pounds 1m, having spent pounds 52m on acquisitions. Assuming profits of pounds 160m next year, a prospective p/e of 16 times is not cheap. However, the shares remain a buy.

A BOUT of profit taking hit Danka Business Systems this week as it announced the pounds 109m acquisition - its biggest ever - of Infotec, a Netherlands photocopier and fax machine distributor.

The shares fell 67p to 489p, before recovering to 514p on Friday. That cast a shadow over a 28 per cent rise in interim pre-tax profits to pounds 27m. Some analysts felt the share price drop was overdone, but even so, the shares are still trading on a steep historical multiple of around 30 times earnings.

The assumption that profits will continue to grow at the heady rate of the past puts a lot on trust. Take profits.

VIDEO and computer games retailer Rhino has charged back to the market, seeking pounds 9m from its shareholders through a five-for-six rights issue at 8p for each new share. At the current share price of 10.5p, that may seem a reasonable discount, but investors who piled in two years ago near the high of 67p are hardly on to a winner. Do not take up the rights.

CONVERTIBLE bonds - loan stock issued by a company that can be swapped into its shares some time in the future - is a specialist, not to say a somewhat esoteric, market. But they offer several attractions.

For a start, there is the promise of a fixed yield. Broker Panmure Gordon's research team likes two convertibles at present: British Airways 9.75 per cent, redeemable in 2005, which yields 4.7 per cent against the current 3.5 per cent on the ordinary shares; and Reckitt & Colman's 9.5 per cent bond, also due for redemption in 2005. The yield in this case is 6.25 per cent, against 3.7per cent on the ordinaries.

Panmure points out that neither bond would be affected by any change in advanced corporation tax rates, a fear often rumoured in the run-up to the Budget.

TIME to take a second look at insurance broker Fenchurch, out in the cold along with its peers in the insurance sector. Since floating in November 1993, it has underperformed the market by 35 per cent.

But unlike some competitors, Fenchurch actually has a fine track record. Profits and dividends have continued to climb at a time when trading has been tough. Full-year results to the end of September, due next month, should see a further improvement on 1994's level of pounds 7.79m.

In addition, Fenchurch is not over-reliant on any one source of business, including Lloyd's of London. Nor does it have much exposure to the US retail market, while its balance sheet is free of long-term debt. At 137p, the shares trade at a fairly undemanding prospective p/e of eight times earnings for 1996. Buy.

DWR CYMRU - or Welsh Water (754p) as it is known in the City - seems to have missed out on the bid fever engulfing the sector. But its gearing remains low for the industry, suggesting that there is plenty of room for special payouts to investors.

The scope for dividend growth is also good. Buy.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Content Writer - Global Financial Services

£25000 - £30000 per annum: Recruitment Genius: From modest beginnings the comp...

Recruitment Genius: Web Developer - PHP

£35000 - £40000 per annum: Recruitment Genius: From modest beginnings the comp...

Recruitment Genius: Field Sales Consultant - Financial Services - OTE £65,000

£15000 - £65000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: Loan Underwriter

£18000 - £20000 per annum: Recruitment Genius: This is a fantastic opportunity...

Day In a Page

The Silk Roads that trace civilisation: Long before the West rose to power, Asian pathways were connecting peoples and places

The Silk Roads that trace civilisation

Long before the West rose to power, Asian pathways were connecting peoples and places
House of Lords: Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled

The honours that shame Britain

Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled
When it comes to street harassment, we need to talk about race

'When it comes to street harassment, we need to talk about race'

Why are black men living the stereotypes and why are we letting them get away with it?
International Tap Festival: Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic

International Tap Festival comes to the UK

Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic
War with Isis: Is Turkey's buffer zone in Syria a matter of self-defence – or just anti-Kurd?

Turkey's buffer zone in Syria: self-defence – or just anti-Kurd?

Ankara accused of exacerbating racial division by allowing Turkmen minority to cross the border
Doris Lessing: Acclaimed novelist was kept under MI5 observation for 18 years, newly released papers show

'A subversive brothel keeper and Communist'

Acclaimed novelist Doris Lessing was kept under MI5 observation for 18 years, newly released papers show
Big Blue Live: BBC's Springwatch offshoot swaps back gardens for California's Monterey Bay

BBC heads to the Californian coast

The Big Blue Live crew is preparing for the first of three episodes on Sunday night, filming from boats, planes and an aquarium studio
Austin Bidwell: The Victorian fraudster who shook the Bank of England with the most daring forgery the world had known

Victorian fraudster who shook the Bank of England

Conman Austin Bidwell. was a heartless cad who carried out the most daring forgery the world had known
Car hacking scandal: Security designed to stop thieves hot-wiring almost every modern motor has been cracked

Car hacking scandal

Security designed to stop thieves hot-wiring almost every modern motor has been cracked
10 best placemats

Take your seat: 10 best placemats

Protect your table and dine in style with a bold new accessory
Ashes 2015: Alastair Cook not the only one to be caught in The Oval mindwarp

Cook not the only one to be caught in The Oval mindwarp

Aussie skipper Michael Clarke was lured into believing that what we witnessed at Edgbaston and Trent Bridge would continue in London, says Kevin Garside
Can Rafael Benitez get the best out of Gareth Bale at Real Madrid?

Can Benitez get the best out of Bale?

Back at the club he watched as a boy, the pressure is on Benitez to find a winning blend from Real's multiple talents. As La Liga begins, Pete Jenson asks if it will be enough to stop Barcelona
Athletics World Championships 2015: Beijing witnesses new stage in the Jessica Ennis-Hill and Katarina Johnson-Thompson heptathlon rivalry

Beijing witnesses new stage in the Jess and Kat rivalry

The last time the two British heptathletes competed, Ennis-Hill was on the way to Olympic gold and Johnson-Thompson was just a promising teenager. But a lot has happened in the following three years
Jeremy Corbyn: Joining a shrewd operator desperate for power as he visits the North East

Jeremy Corbyn interview: A shrewd operator desperate for power

His radical anti-austerity agenda has caught the imagination of the left and politically disaffected and set a staid Labour leadership election alight
Isis executes Palmyra antiquities chief: Defender of ancient city's past was killed for protecting its future

Isis executes Palmyra antiquities chief

Robert Fisk on the defender of the ancient city's past who was killed for protecting its future