city file : Lucas revs for growth

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The Independent Online
IS this finally the time to buy Lucas Industries, the automotive engineering group that has disappointed so many investors for so long?

The shares have more than doubled from their low point of 80p in 1992, thanks to the injection of fresh management in the shape of George Simpson, the former Rover Group chairman. But this year they have been in retreat, as the old questions about reliable performance have revived.

Simpson has duly shaken up the group and cleared the decks for renewed expansion. The question is, can he deliver results from his efforts?

Richard Marshall at Investment Research of Cambridge believes he can. "If the Government's determination to see steady growth sustained over the long term follows through, Lucas can continue to grow for many years yet."

While that gives the shares an undeniable political flavour, this could be the time to take advantage of 1994's standstill.

Stockbroking analysts expect Lucas to swing from a £129m loss to a £120m profit in the year to July, tripling earnings per share and building a platform for a yield of 5 per cent at the current 197p. Buy.

WHILE exceptional items may conspire to cloud the 1994 earnings picture, analysts at BZW, James Capel and SG Warburg agree that shares in Singer & Friedlander are worth buying ahead of the full-year figures due in March.

The innovative merchant bank has added broking and fund management to its corporate finance core, and the mix should be given a Scandinavian flavour next week when shareholders meet to approve the purchase of Carnegie, the international bank and broker owned by Nordbanken of Sweden.

At 87p the shares are on a prospective p/e ratio of 8.5, and carry a comforting 4.4 per cent yield. Buy.

The number-crunching team at NatWest Securities is extending seasonal cheer to East Midlands Electricity and Wessex Water, the last two utilities to report at the end of their respective sector results seasons.

It sees East Midlands' half-year profits rising from £22m to £28.9m, and Wessex's interims rising from £53.4 to £60m. Buy both, says NatWest.

The sparks analysts reckon that East Midlands needs to produce a bigger-than-average dividend increase to make up for its relatively weak balance sheet. That would help stem a four-month slide by the shares, both absolutely and relative to the All-Share index. The new chairman, Nigel Rudd, will want to show he can outdo his peers in the electricity industry - and last week's news of a likely bid for Northern Electricity will make the whole sector open its coffers to curry investor favour.

Wessex should please with a 10 per cent dividend increase. Although this will be well behind Northumbrian's 16 per cent rise, it should underpin the shares against overdone fears about the impact of the Budget's new landfill tax on the company's UK Wasteoperation.

In THE battle for the most fashionable executive Christmas presents, Psion vs Filofax is the hardest fought. While Psion's Organiser 3 and 3a capture the plaudits for fans of combined electronic diaries, address books, spreadsheets et al, Filofax retainsa loyal following among those who prefer good old-fashioned paper records.

The two are neck and neck on the stock market. The City, conservative as ever, gives Filofax the edge. Its shares sell on 18.6 times last year's earnings and carry a 1.2 per cent yield, while Psion is on 17.5 times and 1.5 per cent. Recent interim results from Filofax saw profits leaping by 68 per cent to £2.1m, putting it on track for £5m in the year to March. More than a third of the gain is coming from acquisitions, but the group is clearly reinvigorated after its recession-hit slump until two years ago.

BZW predicts that Psion profits should rise from £3m to £5.8m in the year to this month. Unlike Filofax, its earnings will not be diluted by share issues. Both are good bets, but if you have to choose, go for Psion.

WHILE on the subject of Christmas presents, few males young or old can resist a Hornby-Dublo train set or a Scalextric toy race track. However, too many investors for comfort have been resisting Hornby shares. They languish at 129p, where they yield a suspiciously high 8.7 per cent.

That reflects a deep but unjustifiable mistrust of prospects on the back of a cautious trading statement from the company, which has solid institutional backing from M&G, Fidelity and others. The company has invested £8m in the last three years on new factory facilities, making nonense of its present £10.7m stock market value.

As David Bowen explains on page 6, Meccano, Hornby's progenitor, is enjoying a new lease of life under its French owner. It is beginning to flex its muscles, and will be attracted by the prospect of buying Hornby on the cheap. Get in first.

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