City File: BT boss's cash-in inspires little hope (CORRECTED)
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Your support makes all the difference.CORRECTION (PUBLISHED 11 SEPTEMBER 1994) APPENDED TO THIS ARTICLE
WORD that Sir Iain Vallance, the British Telecommunications chairman, has cashed in some of his share options could not come at a worse time for the company. Next month, shareholders will be asked to pay the final tranche on BT3, the pounds 5bn sale of the Government's remaining holding, launched in June last year.
Even with the array of discounts on offer, small investors will still be paying at least 410p a share by the time they have written their final cheque. That looked fine 15 months ago, when the price was around 420p. But it does not look so sweet today, with the price 100p off its 1994 high at 388p.
It is virtually pointless to boycott the final instalment, because defaulters will lose perks. But it is never encouraging to see a chairman heading for the exit, in however modest a fashion. Now that it is easier to deal in small parcels, many private investors may be tempted to cash in whenever the price rises to meet their buying price. Avoid.
WHILE our colleague Quentin Lumsden rightly extols the virtues of fashion shares on page 9, do not overlook the less glamorous but still attractive qualities of Helene, a maker of what Michael Harris, the chairman, calls 'bog standard' coats, blouses, skirts and dresses for the likes of Burton Group and C&A.
The group has been through hell in the past few years, as gearing went through the roof and had to be brought down with rights issues. Harris is confident that the path is now clear. But the shares have yet to reflect this improvement, partly because sentiment was affected by a vindictive fire last October. Nevertheless, Harris claims an unbroken 30-year record of paying uncut dividends. That gives a valuable underpinning for a yield of 8.8 per cent at 28 1/2 p. Buy.
ELECTRONICS, packaging and building services are providing a fertile brew for John Newman, the ex-Hanson executive who has taken over at TT Group, the pounds 400m conglomerate. Earnings and dividends have grown every year since he took over in 1987.
Newman follows the tried Hanson formula of buying and turning round poorly managed low-tech businesses. Its latest morsel is Dale Electric, the maker of power generators.
The share price chart looks promising and, according to the Earnings Guide, six broking firms predict a profits increase from pounds 23.9m to more than pounds 31m for this year. At 387p that will take the earnings multiple down to 17.3. Good value.
DON'T say we didn't warn you. Rolls-Royce, the turbine and aero engineering group, surprised the rest of the market - but not readers of this column - last week when it announced half-year profits of pounds 40m, at the bottom end of expectations. Although that was a 29 per cent increase, the figure was flattered by proceeds of last year's pounds 309m rights issue.
More to the point was the confirmation by Sir Ralph Robins, RR's chairman, that market conditions are unlikely to improve until 1996. The shares duly clattered down 20p to 180p on the week. At that level they are still on more than 25 times prospective 1994 earnings. Shares may stay under a cloud until next summer.
LOOK out for half-year results from the building products distributor, Sheffield Insulations, on Friday. They should show profits on the way from pounds 9.8m to more than pounds 16m for this year on the back of strong cashflow and new sourcing from overseas manufacturers. A prospective earnings multiple of 18 is not too much to pay. Buy.
TUCK away some EIS Group shares for Farnborough week, which begins today. This precision engineer has a knack of bucking trends to knock out a steady year-by-year profits increase.
Interims due tomorrow week should confirm its lockaway status. At 382p, the 4 per cent yield is reliable.
CORRECTION
LAST week we reported that Sir Iain Vallance, chairman of British Telecommunications, had cashed in some of his share options. We now know that although Sir Iain did indeed exercise options to buy shares, he sold only sufficient of the new holding to cover the cost of the exercise.
We are happy to make clear that Sir Iain retained the balance of 163,700 shares and thus underlined his commitment and confidence in the future of BT.
Apologies to Sir Iain if any contrary impression was given.
(Graph omitted)
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