A time when a good buy is no buy

The Week in Review

By Stephen Foley
Saturday 01 December 2001 01:00

De La Rue

De la Rue's main business is in systems to sort cash for banks or supermarkets that need to cut the cost of cash-handling. That's going gangbusters but the higher-margin bank-note printing operation has been hit by delayed orders from India's Central Bank. Until De la Rue manages to deliver consistently across the board it is hard to the see the shares outperforming.

Enterprise Inns

Enterprise Inns has been snaffling up pubs as they come on the market, and now has a portfolio of 3,500. But the deals have left the balance sheet stretched and any big acquisition from here would probably require a rights issue. That's a prospect to hold back the shares, and the proposed flotation of Punch Taverns' bigger pub estate next year is also a worry. Though Enterprise's premium to the sector is well deserved, investors would be prudent to take profits.

Nord Anglia

Nord Anglia Education once ran language schools, now operates nurseries, has made several acquisitions to boost its teacher-support services business, is winding down its failed management school, is bidding for a military training contract overseas, and is trying to sell its accountancy tuition business. The group is fizzing with ideas, many good. Private involvement in the education system is increasing fast, but competition is fierce and bidding for contracts expensive. The share price takes a lot on trust. Avoid.

Anglo Irish Bank

Being in the small business banking niche has swelled Anglo Irish Bank's profits on the economic upswing across the Irish Sea; it could leave AIB exposed as the Celtic Tiger loses its growl. So it has used the buoyant conditions of the past few years to move into the UK – which now accounts for 37 per cent of the bank's loan book – and top up provisions for bad debts. The stock is worth holding.


There is nothing to suggest the department store chain can shake off its historic under-achievement. Stores are opening, but it is alarming that management refused to tell analysts whether the new outlets are performing in line with internal projections. Like-for-like sales since 1 October are a miserly 0.1 per cent ahead of last year. Allders shares are not cheap, and it is not worth betting on a takeover bid. Sell.

Richmond Foods

Richmond is the UK's biggest ice cream manufacturer, supplying Tesco-branded ice lollies, kids' favourites such as Fabs and Fruit Pastilles lollies, and sophisticated choc-ices, too. In the short term, it promises £4m of annual cost savings. After that, it will be a matter of improving distribution, launching new products, and boosting the quality of the lollies and ice cream tubs. The management appears to have got it licked, and the shares are good value.

Care UK

Profits at Care UK, which runs care homes for the elderly and the mentally ill, have been hit because local health authorities reneged on promises to send patients to two new homes, leaving them almost empty. But the cash keeps coming in from long-term contracts to run old people's homes and the company is sure to be a long-term winner from NHS reform. With a return to 15 per cent annual growth being forecast, shares are good value.

365 Corporation

365 floated in 1999 to fund a network of sports and lifestyle websites, but the dream has died and it has put its main four sites into a joint venture with Chrysalis, the radio group. 365 still has an underperforming business telecoms division, and even its cash cow, the 0898 numbers business, is in the red as it develops a "voice portal" to make multi- choice phone services such as ticket booking less traumatic for the caller. Avoid for now.


The big question about GUS remains its distinctly out-of-fashion conglomerate structure. The £1bn-plus Burberry float is still planned for June and other smaller businesses have already been offloaded. What about Experian, the business information division? GUS says there are important synergies, such as developing systems for the Argos store card and wishes the City would appreciate its defensive qualities. After a rally, the share price looks about right for now.

British Land

The UK's No3 property company has a great portfolio and is being surprisingly upbeat on prospects, but British Land has performed poorly over the past 20 years. The issue appears to be Mr Ritblat, who towers over his empire. With a reputation as a deal junkie, the market is terrified he will squander the family silver on some big transaction. While he's there, the stock is likely to underperform. Avoid.


The computer services company must urgently reduce the number of small, low-margin customers so it can focus on selling additional services to its bigger clients. Happily, in the wake of a profit warning earlier this year, Synstar is well into its restructuring and its client base should shrink soon. While the company seems to be delivering on recent promises, economic conditions alone suggest it is too early to chase the shares.

The above is a selection of recommendations from this week's daily investment columns

It isn't just Britain's smokers who benefited from the Chancellor's relative restraint in the last Budget, when he hiked the duty on packet of fags by only 6p. Shareholders in Imperial Tobacco are winners, too. The modest tax rise was among the reasons given for the resilient performance of the UK tobacco market. Sales declined by 5 per cent, half the usual rate, as the demand for contraband cigarettes was reduced.

At the same time, Imperial overtook British American Tobacco as the UK market leader, with brands such as Lambert & Butler, the top seller, Richmond, the fastest-growing, and now Marlboro, which it is distributing on behalf of Philip Morris, the US tobacco giant.

Operating profit from the UK was steady at £325m, and pre-tax profits across the group continued to be driven by overseas growth. Imperial made £494m in the year ended 29 September, up from £450m. It has yet to put a foot wrong despite making some great strides overseas. Acquisitions such as the recent Tobaccor buy, which took Imperial into Africa, have been made at the right price. Fingers crossed that this continues. Gareth Davis, chief executive, refused to rule out bidding for Reemtsma, the third-largest cigarette firm in Germany, which is up for sale for an estimated £3.5bn, a deal that would be fraught with danger. There are also some worries over the Middle East, where growth was disappointing. Imperial said it was side-tracked with the Tobaccor deal and, after 11 September, it has also developed cold feet on some product launches in the region.

The empire is growing, but the risks must be increasing and the shares are vulnerable to a shift out of defensive stocks as equity markets recover. Hold.

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