City Talk: Commercial back after the break

Commercial Union (574p) may be out of favour with the market, having underperformed by 11 per cent since the start of the year. But the net asset value is expected to grow quicker than any other insurance stock, while concerns about US pollution and the Victoire acquisition have receded.

On a dividend basis, with a prospective yield topping 6 per cent for the December year-end, there is every reason to treat the shares as a buy. Nor should the company have any problem maintaining dividend growth at 6 per cent a year.

IN CONTRAST, the rise in shares of Midlands metal basher IMI, up 38p since February, seems overdone. Some brokers have been cutting forecasts, while its markets in Germany are still tough. Expect the shares to tread water for a while.

PRELIMINARY results from engineer FKI failed to set the City alight, with the shares up a grand total of 3p to 182p since the announcement on 13 June. But a pounds 45m jump in pre-tax profits to pounds 90.1m and a 13 per cent increase in earnings per share to 11.3p suggests a rethink could prove fruitful.

The company also has a strong balance sheet, with a pounds 300m war-chest for further acquisitions and strong cash flow to support its ambitions. With another deal, for pounds 75m, set to enter due diligence, the shares look pretty interesting.

IF YOU have a taste for fine tea and coffee, Whittard's of Chelsea could be worth a sip. The group has floated itself on AIM, through a placing of shares to raise pounds 8.5m, of which almost pounds 6.5m will go to existing shareholders.

The issue values the group at pounds 23.5m, at a placing price of 148p. Despite its niche image, growth has been impressive. From pounds 7.1m in 1993, sales rose to pounds 18.4m for the 10 months to 24 March of this year. Pre-tax profits were pounds 2m. Should growth go off the boil, AGM aficionados should find the restorative powers of a decent cuppa a calming influence.

HOW much further to go for Carpetright, run by retail star Philip Harris, now Lord Harris? The shares were off following the figures last week, after pre-tax profits rose from pounds 19.7m to pounds 24.8m. This year, he wants to open another 89 stores, on top of its existing 246. If so, sales could rise a further 35 per cent to pounds 250m, with pre-tax profits up a third again to pounds 33m. At 20 times next year's earnings, however, the shares (577p) require a large dose of faith. Now is the time to take profits: sell.

EUROTHERM (607p) is another stock market wonder, with the shares up strongly in recent years. Profits continued their upward trend at the interim stage, with a figure of pounds 18.7m suggesting that the full year is on course for another bumper rise. Cash at hand rose to pounds 38.7m, from pounds 21.7m for the previous half-year. Sales into Asia are booming as well, up 31.6 per cent. The company also squeezed margins up a tad again, to 17.5 per cent, from 16.8 per cent.

Although the controls and instrumentation division had a slightly poor half - profits were down 2 per cent, despite a rise in sales - elsewhere things look in robust good health. The dividend is covered a remarkably strong 3.4 times. Expect earnings per share to hit 25.1p for the full year. Buy.

THE move by Cowie, the motor car dealer, to snap up British Bus, the last significant private UK bus business, and the third largest in the country, for pounds 282.5m, should bode well for both. The price is fairly cheap, compared with some other bus deals, while British Bus, which was previously chronically underfunded, can benefit from the deeper resources of Cowie. Cowie can lift margins a couple of points from their present 12 per cent, while motor sales will fall from 65 per cent to 50 per cent of total sales.

A one-for-three rights issue at 350p a share, against a current price of 416.5p, raising pounds 180m in the process, should have an instantly beneficial impact on the bottom line. In 1995, British Bus made pounds 34m of operating profit on pounds 280m of sales. Buy.