British Vita bounce is a chance to sell

British Vita; Informa Group; Computerland

Like many in the specialty chemicals sector British Vita has seen a tough time and the management has decided it is time for radical action. The group makes foams for bedding and furniture as well as rubber and plastics for a range of uses such as nappies, vacuum cleaners, toys, ski suits and car parts. It has been hit by rising raw material prices and slower demand. It also heavily exposed to the slowing US economy.

Yesterday, the company bit the bullet when it decided to "explore its options" regarding its 46 per cent stake in Spartech, a quoted US chemicals company. In effect, it is up for sale. The stake was acquired as British Vita's initial foray into the US in 1989 but the management feels the stake's value has never been reflected in its share price. Currently the holding is worth around £190m against £70m book value.

British Vita is not being specific on what it will do with the proceeds but it seems fairly clear that the cash will be returned to shareholders.

That was the key reason behind yesterday's jump in the shares which rose 15.5p to 201.5p, close to their 12-month high. And there could be further rises of up to 230p-240p, some analysts say, as the markets warm to the prospect of a cash return. But the longer term prospects look less promising.

The business is not trading well with profits down 15 per cent to £37.5m in the first half. Furthermore, the difficult US market will still account for a sizeable chunk of the business even after the Spartech sale and the trend in raw materials prices are not thought to be in the company's favour. Also, a consumer slowdown would hit the company's foam operations which supply bedding and furniture makers. Margins are being boosted by cost-cutting, hence 700 redundancies and another 150 to come. And the shares are certainly lowly rated – on Old Mutual Securities full- year profit forecast of £70m they trade on a forward price-earnings ratio of 10. But the bounce in the price offers an opportunity to sell.

Informa Group

A distant victim of the telecoms crash has been Informa Group, the business to business information group, whose biggest division relies heavily on producing several major conferences for the industry.

Reviewing Informa at the time of its full-year earnings in March, we judged the shares, then at 581p, a good bet to outperform the media sector. Woefully, for that recommendation, the spring downturn in media stocks followed by a lacklustre June trading statement cut Informa shares in half.

Yesterday, the group reported interim earnings largely in line with (reduced) expectations. Pre-tax profit, including a £1.2m charge for a 5 per cent trimming in staff, was unchanged at £19m, even though sales, boosted by acquisitions, grew 21 per cent to £179m.

With telecoms earnings split about 80:20 in favour of conferences, the impact of slashed travel budgets among carriers and suppliers has been substantial. What was less than a year ago, a rapidly expanding segment for Informa is now subject to limited visibility and pessimism.

Several of the bigger conferences depend on the mobile market, which is groaning under the impact of costly third generation network licenses and racked by uncertainty about the technology's commercial potential. That has seen delegate attendance, which accounts for about half of conference revenues, tumble. Conversely, demand for exhibition space, the other source of revenue, is still buoyant, although the rate of growth has slowed from the torrid pace seen in recent years.

Overall, the telecoms and media division, which was flat at £10.3m, accounted for 39 per cent of interim operating profit. The group's five other information and conference areas all chalked up gains.

Life Science, helped by the £22m acquisition of US research journal Bio Techniques, saw operating profit soar 155 per cent to £1.6m. Financial, boosted by the acquisition of MCM, an on-line publisher to market professionals, contributed £5.5m, a jump of 42 per cent.

Even analysts who like Informa at current levels are wary about the near-term performance of the telecoms conferences. The question is whether delegate attendance will coalesce around bigger conferences or tumble across all events.

Up 7p at 283.5p, Informa trades on a prospective p/e multiple of just 12 given forecast 2001 pre-tax profit of £44.6m. That low rating should make the shares attractive to value investors who may want to wager on an eventual bid materialising from the likes of Reed Elsevier or United Business Media.

Computerland

After a long period of decline, shares in Computerland, a hardware reseller and services supplier, perked up yesterday with an AGM announcement that trading for the fiscal first quarter to July would produce unspecified higher profits than a year ago. That helped the stock rise from all-time lows, closing up 7.5p at 52.5p, but still valuing the company at a mere £5.5m.

The bottom line gains were the product of strong year-on-year growth in outsourcing and hardware support. IT hardware sales, underlining the continuing woes for equipment makers from IBM to Compaq, were lower.

It is a measure of the IT sector's vicious pricing environment that Computerland operated on a lower than 1.0 per cent profit margin in the year to April when pre-tax earnings came in at £304,000 on a near one-third rise in sales to £37m. Despite that low return the group's balance sheet reserve of £3.6m net cash at 30 April should underpin the stock at these levels.