City File: Cycle to undermine RTZ price

CONTRARY investors should sell RTZ Corporation, one of the world's biggest mining groups. The shares have been buoyed by rising world prices for metals such as copper and aluminium. Most City brokers have seized on the current fad for commodities to recommend the shares, which have outperformed the FT-SE 100 index by almost a fifth over the past year.

Their bull run may be over, though. In a keynote circular out next week, Fleming Securities believes that RTZ will underperform the market as the economic cycle advances, because its earnings will not rise sufficiently to justify its premium rating. At 873p last Friday, the shares are trading on 19 times 1994 earnings. Sell.

JAMES CROPPER, the Cumbrian paper maker, looks good value. The paper industry is enjoying lively demand after three torrid years when profit margins were reduced to paper-thin levels by overcapacity and recession. The question is, will Cropper be able to push up margins by raising prices?

The AGM statement from Cropper last week was upbeat. Profits were well ahead in the first quarter, and it was obtaining higher prices from customers. It all points to a strong year for Cropper, which looks set for taxable profits of pounds 3.5m for the year to March 1995, up from pounds 2.6m last year. The shares, up 7p to 319p on Friday, are trading at under 12 times prospective earnings.

ENTERPRISE OIL, the big North Sea explorer, has enjoyed a good run despite losing its pounds 1.6bn takeover bid for rival Lasmo. The shares have gained from a firm crude oil price and rising production. But at 428p, they are trading well above the company's asset value of about 375p a share.

Elf, the big French group, could soon offload its 10 per cent interest in Enterprise. Institutional investors want Graham Hearne, Enterprise's chairman and chief executive, to step down from the top job - though he appears unwilling to oblige. The market is also likely to become increasingly fretful about the possible return of Iraq to the world oil market next year. Sell.

PILLAR, the property group , looks set for a confident stock market debut. The public offer for 15 million shares at 150p has been oversubscribed by more than four times. The company, valued at pounds 170m, which has a portfolio of 26 investment properties across Britain, was set up by Raymond Mould and Patrick Vaughan, who built up a strong City following with their previous venture Arlington. The shares are likely to open at a big premium on 15 August, not least because institutional investors were also scaled back to meet the public demand and will want to top up their allocations.

SINCE its interims last Tuesday, National Westminster has added 25p to reach 478p and presents an opportunity to take profits. Despite an 83 per cent hike in pre-tax profits powered by evaporating bad-debt provisions, the banking story this half is all about lack of loan demand and squeezed margins.

In this environment, cost control is all, yet NatWest is investing heavily in its investment banking arm NatWest Markets, sending the key cost-to-income ratio up 3 per cent to 67.6 per cent.

The bank wants to defend market share rather than pay money back to shareholders. Lloyds looks better for long-term dividend prospects, and Barclays for growth this year.

IT WILL be no surprise next week if Tiphook, the transport leasing group, announces losses. The company is hugely in debt, despite selling its container division business earlier this year. Losses are expected to be about pounds 200m for the year.

The shares fell from 34p to 26p on Thursday on rumours of a deeply discounted rights issue, but finished the week at 30p on hopes that business is at last picking up. If so, the shares might be worth supporting.

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