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
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Digital Optimisation Executive - Marketing

£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

Recruitment Genius: Financial Reporting Manager

£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Day In a Page

Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at long last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)
Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

Wiggins worried

Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific