City Talk: VideoLogic poised to dine out on chips

VideoLogic's shares soared 25 per cent last week to 92p, thanks to the world's largest computer maker, Compaq, choosing VideoLogic's graphics silicon chip for its next range of PCs. The chip, which generates three- dimensional images, will be made by the Japanese electronics giant, NEC. Minnow VideoLogic gains a royalty on every chip sold.

Where Compaq leads, other computer manufacturers are sure to follow. So expect to hear soon about other big PC makers opting to use VideoLogic's chips. VideoLogic has other silicon chip developments under way with NEC.

The company will report annual losses for the year to end-March 1996 on 23 May. But the Compaq development will see it move comfortably into profits this year. Stockbroking firm Charles Stanley reckons they could reach pounds 10.2m.

VideoLogic's shares are not for the faint-hearted. But those with stamina to take the rough with the smooth can expect to see the shares rise further after a brief lull in the price for the profit takers who came on board a year ago at less than 40p.

THE PREMIERE GROUP is an employment agency seeking a main market listing via a placing of 2 million shares at 133p a share. The issue will value Premiere at a little more than pounds 5m. Employment agencies have enjoyed a favourable climate as companies increasingly look to temporary staff as a permanent solution to more flexible working practices. Indeed, the UK market was worth an estimated pounds 10.3bn in 1994 - an increase of 29 per cent on the previous year.

The company now has 19 high-street branches, specialising in office, industrial and nursing/care staff. Sales of pounds 20m in 1995 saw pre-tax profits reach pounds 408,000. Worth a punt.

ANOTHER example of "Guess the effect of Labour" was doing the rounds in the City last week, in a note from Goldman Sachs. Analysts Paul Walton and Edmund Shing tried to identify those companies with significant foreign holdings that could be vulnerable to selling pressure if Labour wins the next general election.

Among those highlighted: Danka Business Systems, with 76 per cent owned abroad; SmithKline Beecham, with 73 per cent held overseas, mainly in the US; and Vodafone, with 44 per cent.

Perceived risks from a Labour government include: a higher corporation tax rate; a change to the taxation of dividends; and a change to the capital gains tax, raising the rate on short-term trades, but reducing the rate on longer-term holdings - all of which could be a big turn-off to foreign investors.

FEARS that the management at Beazer Homes (195p) has been overeager to spend its cash pile are overdone. It should be able to fund long-term growth without recourse to shareholders. Profits for the current year are set to fall from 1995's pounds 55.7m. However, at 17.9 times 1996 earnings, the shares are in line with the market but deserve higher. Buy.

POOR old Vaux. The Sunderland-based brewer to pubs and hotels group managed to report a 14 per cent increase in pre-tax profits to pounds 13.3m for its interim figures last week. But the market found the figures wanting, and the shares had come off 7p to 294p by Friday.

It is not just the poor quality of some of its managed pub estate that concerns investors. More worrying, as stockbroker BZW points out, is that the return on capital employed is only about 8.7 per cent. But gross interest costs are almost 9 per cent, while analyst Charles Winston calculates the weighted average cost of capital to be 12.5 per cent.

The return is less than the cost of the money invested - an impossible situation. Sell.

BOOTS, the high-street chemist chain to Do It All and Halfords group, looks toppy. At 629p, the shares are on a 15 per cent premium to the market. With pounds 500m of cash in the bank, there may be a special dividend, but that assumes there is no large acquisition in the offing, while Do It All remains in a mess. Steer clear.