City File: Stay in neutral on Inchcape

INVESTORS should take Inchcape, the motor imports to financial services firm, for a test drive, some City analysts now say. But it may be best to wait until the interim results are out of the way tomorrow.

The company, which last Friday announced a strategic alliance with Acordia, a US insurance brokerage, is expected to reveal interim profits of pounds 123m tomorrow, down from pounds 130.9m in the same period last year. The company's strong performance in Asia will be dragged back by the weak yen, while disappointing August figures for Japanese car imports to the UK bode ill for the second half of the year. Inchcape is currently undervalued by about 10 per cent at 398p, according to Nyren Scott-Malden, a support services analyst at BZW.

The shares came under selling pressure in July when the group passed on an option for 10 per cent of Gestetner, the office equipment group, taking the shares down from a high of 609p. Hold off for the moment, but the time to buy again could be within sight.

DOUBLED pre-tax profits last week showed that Edinburgh Fund Managers still has plenty of steam. Its stable of investment trusts are mainly in the Far East and it has a good record of launching new trusts to tickle investors' palates. At the current price of 658p, the 4 per cent yield is conservative as there is a good prospect of a big increase in the final payment. Buy.

RTZ shares have been under a cloud since this month's interim results, as fears over metal prices have overshadowed an excellent financial performance. Although profits are set to power ahead to more than pounds 700m next year, against less than pounds 300m in 1993, the shares at 885p may have raced ahead too far. Sell.

IN ITS first six months as a quoted company, the engineer Wellington Holdings has learned the hard way that the stock market is a tough taskmaster. Even though it met expectations with its recent interims, the shares hover near their issue price at 198p after being 220p in June.

The group, which makes seal systems for hydraulic cylinders, is on course to take profits up from 1993's pounds 2.6m to pounds 4m this year and pounds 5m in 1995. Gearing of 35 per cent means that higher interest rates will affect results, but on a yield of 3.5 per cent the shares have solid underpinning. Buy.

TRIPLED profits could be on the way tomorrow morning when Schindler's List book publisher Hodder Headline unveils half-year results. Much of that improvement will come from a first-time contribution from Hodder & Stoughton, but over the next two years managing director Tim Hely-Hutchinson reckons to squeeze considerably more from Hodder's rich back list and slack past management. The yield is tiny, but the 23 earnings multiple is more than justified. Buy.

JOHN RANDALL'S arrival as managing director at MFI Furniture could breathe new life into the shares, currently near their 1994 low of 135p.

MFI's burden is its close tie to the housing market, the prime stimulator of kitchen and bedroom furniture sales. But Randall's predecessor, the charismatic Derek Hunt, scythed the cost base in his last few years. That gives the company high operational gearing, as more of every pound of sales falls through to profits.

Even if people stop moving house, they will eventually need to replace the beds and tables that are MFI's stock-in-trade. That could take profits for the year to April up from pounds 69m to pounds 90m. Buy.

SELL Thames Water shares, says Panmure Gordon, the stockbrokers. They expect an increase in profits from pounds 241m to pounds 295m in the year to March, but argue that the dividend cover is too low to make up for a poor diversification record into non-regulated activities, mainly abroad.

Only South West Water exceeds the cautious 5.6 per cent yield on Thames shares at 499p. That can be a tempting return, but there are richer pickings. Avoid until the picture clears.

A STRING of asset sales has finally taken BM Group off the critical list, according to Albert E Sharp, the stockbrokers. The sales have enabled the company to overcome the financial problems inflicted by the acquisition of Blackwood Hodge, the earthmover maker, removing the lingering fear that BM would have to submit to an equity refinancing.

What remains is a UK engineering group targeted on process equipment and fastener manufacturing. These should produce a clean profit next year, putting the shares at 46p on a prospective earnings multiple of 14.8 for 1995 and only 7.6 for 1996. Buy.

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