The Investment column: Turbulent times at BAA

BAA has had something of an annus horribilis with a windfall tax, the strong pound and the Asian crisis. And to complete the misery, EU finance ministers have finally signed Duty Free's death sentence.

There have also been difficulties inside the once state-owned airport operator now born again as the group covering airports, retailing - and soon trains. The takeover of Duty Free International in the US has so far not delivered the goods. Meanwhile, BAA now admits the Heathrow Express rail service will not bring clear profits in the first year as hoped.

However, all this is a bit harsh on BAA. Even though the share price has reflected the turbulence, the fact is that Sir John Regan, the chief executive, has brought his corporate craft quite smoothly into land with pre-tax profits up 17.9 per cent to pounds 480m.

Revenues rose from pounds 1,373m to pounds 1,679m in the 12 months to March while earnings per share rose 10.7 per cent to 35.3p, admittedly with the help of some exceptionals.

The bottom line results were on the better side of analysts' expectations. They were underpinned by stronger than anticipated UK passenger growth of 6.7 per cent which has led to next year's figure being upgraded to 6 per cent.

Last week's decision by EU finance ministers not to review the decision to end Duty Free next year was not unexpected, but it will blow an pounds 80m hole in future profits. Sir Roger admits the "fight is over" to keep EU Duty Free, but the strategic battle to find other ways of enhancing income is in its infancy.

The acquisition of DFI must still prove itself. BAA says the Asian crisis hit it hard but the future still looks bright. The move into managing four additional international airports including Naples and Melbourne already looks sound.

BAA has a decent underlying business but not one without risk. Analysts put the company's 1998 pre-tax profits at pounds 500m giving a forward multiple of 18.1. Investors already in there should hang on.