Bottom Line: Full steam ahead

THE ONLY shadow cast over P&O's sparkling results yesterday lies deep under the English Channel in the shape of Eurotunnel. There is no way of quantifying the effect on the group's ferry business when the tunnel finally opens for business.

Lord Sterling is sanguine but not complacent. He admits frankly that Eurotunnel will be a serious competitor, come what may. He also now accepts that there is no prospect of a merger between P&O Ferries and Sealink getting past the MMC before the tunnel is open.

However, he makes it clear that P&O will fight to keep up its market share. The ferries business has been performing exceptionally well, but P&O is moving to make it as lean as possible before the tunnel's opening, taking a pounds 15m restructuring provision up front in yesterday's figures.

The uncertainty over the ferries' medium-term prospects should not be allowed to obscure the fact that P&O's investment and disposals programme during the recession is beginning to pay off. It is a group heavy with cyclical businesses such as shipping and construction, and shipping is turning round.

Yesterday's results were at the top end of the market's expectations, and most analysts are expecting this year's profits to surge towards pounds 300m.

The US and Caribbean cruises business is proving exceptionally profitable and there are three more enormous liners on the way. The construction division is winning lucrative contracts.

Given the scope for further recovery, P&O's shares justify their 30 per cent or so premium to the market.