City File: Engine maker looks flat

BEWARE shares of Rolls- Royce, the aero and turbine engine maker. The price has been strong of late, but the more adroit analysts are expecting no better than flat earnings when half-year results are reported this week.

The pre-tax profit will look good, thanks to the impact of last year's pounds 309m rights issue. But that will flatter only to deceive: the fact is that global demand for new aeroplanes is probably hitting its cyclical low this year, so the real action will only begin in 1995. Steer clear, but be ready to pounce when the time comes.

DAVID LANG, food guru at Henderson Crosthwaite, is licking his lips in anticipation of the goodies to come from Cadbury Schweppes on 8 September. That's when the group reports half-year profits, which should show a jump from pounds 155m to pounds 200m, on the way to 1994 profits of pounds 470m and as much as pounds 525m next year.

'The results will be spectacular,' Mr Lang enthuses. 'The reason is that it's an extremely well-run business that is continuing to motor.'

A gentle revival in consumer spending is doing no harm, either. That adds up to good value with the shares at 470p, for a prospective earnings multiple of less than 15.

PSION has much to live up to when it reports interim results on Wednesday. The City is looking for confirmation that the company is on track for a rise in profits from pounds 3m to at least pounds 5m for the year. The Series 3 and 3a personal organisers are roaring away, and management is spreading sales wider geographically. But as the shares are selling on nearly 30 times historic earnings at 266p, there is no room for slip-ups.

AS WE predicted last week, the results from Hambro Countrywide were, in the words of Stephen Kirk at NatWest Securities, 'extremely disappointing'. Pre-tax losses of pounds 707,000 at the insurer and estate agent left little room for optimism, especially as housing sales and prices were up. If you didn't sell before, get out now.

AFTER two years in the doldrums, investor sentiment is warming towards Lloyds Chemists, the second largest chemist chain in UK, which also owns Holland & Barrett, the health food stores. Last week, two big lines of shares went through the market, fuelling hopes that City institutions were beginning to build up their positions after the appointment of a new finance director.

Full-year results to 30 June, due to be reported early in October, should increase from pounds 50m to pounds 56m, rating the shares on below 10 times earnings. The shares at 310p last Friday, could soon be re-rated.

SHARES in Aegis, the media buyer, have surged ahead by 85 per cent since January to 32.5p last Friday but have further to go. Last week, it appointed Crispin Davis, former director of Guinness, as its chief executive - a move that has been well received by the market and should go a long way to restoring confidence in the company's future after almost coming to grief two years ago.

Further confirmation of its rehabilitation should come early next month when Aegis is expected to return to the black, putting taxable full-year profits of pounds 30m well within reach.

With Europe's advertising markets on the mend, the shares, trading on about 14 times 1994 earnings, are good value. Omnicom, the big US advertising group that holds a 10 per cent stake, is a potential bidder.

BUY Tesco in the wake of the group's successful bid for William Low, the Scottish supermarket group. J Sainsbury characteristically retired gracefully from the battlefield, leaving Tesco to reap the rewards of another regional infill, as it did with Hillards in Yorkshire. At 13 times earnings, the shares, at 254p, offer good value.