Dobson puts Schroders back on profitable track

BBA needs US boost to take off; Hold your horses for Arena Leisure

Michael Dobson yesterday put in another pukka performance unravelling Schroders, the fund management business that was not so long ago a the basket case.

Indeed, it looks as if the patrician chief executive, who was lured to the company in October 2001 when Schroders helpfully agreed to buy out his hedge fund group, may well be worth his bumper pay packet.

Pre-tax profits were up 25 per cent to £32.4m in the first six months, costs fell 17 per cent and, for the first time in four years, Schroders managed to attract more money into its plethora of funds than cash flowing away to rivals.

Mr Dobson is hopeful that having rolled up his sleeves and administered a fair amount of pain to one of the City's best known investment houses, the story now be all about the gain.

Schroders has already boosted retail funds under management, which are more lucrative than institutional funds, and plans to increase this area further. It is also reducing its presence in bog-standard management and boosting specialist areas such as hedge funds and overseas funds, which also come with higher fees.

While hundreds of jobs have gone at Schroders - some through outsourcing, others with a bin bag in hand - the company isn't afraid to pay big bucks to hire talent and it has been gradually building up some top teams again.

The company is not out of the woods. Mr Dobson warned that Schroders is likely to loose more mandates because, despite two-thirds of its funds beating their benchmark indices, over three or five years many still compare badly.

Additionally, many local authority pension funds are showing an irritating habit of sacking their old fund managers and putting their cash into a range of specialist funds with different managers. This presents a challenge as well as an opportunity for Schroders.

Schroders shares - yesterday up 8p at 725p - in the past few months have strongly reflected the glints of recovery in the equity markets. The shares, trading on a ratio of 40 times future earnings, appear to have taken full account of Mr Dobson's ability to turn the company round. Hold.

BBA needs US boost to take off

BBA Group is a divided company. One side is an aviation services provider that cleans and fuels aircraft, and the other is a materials manufacturer for products such as nappies, baby wipes and kitchen roll.

The outlook for the aviation business is tied closely to the economy, while its materials business is its steady, solid earner. This twin-pronged approach has made it resilient, producing double-digit margins and strong cashflow - £80m last year.

But yesterday the group revealed that both sides of its business had taken a hit from cyclical factors. The war in Iraq was an obvious cause for a slump in aviation services, which is predominantly US based. But the war also hit oil prices, which helped drive up costs of polypropylene, the main component of its materials. First-half profits fell 11 per cent, though the company is confident these were one-off "blips" that are already in the past. Materials prices have fallen 15 per cent from their April highs.

Demand for air travel also seems to be improving, and busier flight schedules are good news for BBA's refuelling, ground handling, and engine repair services.

At 256p, down 1p yesterday, the shares have been gaining ground on hopes of an economic bounce back. It is now trading on around 12 times earnings, which seems a little pricey. But if the US business environment, where it gets 70 per cent of its profits, and worldwide air travel continue to gain momentum, its earnings could jet ahead. A play on the US economy. Hold.

Hold your horses for Arena Leisure

Arena Leisure is a racecourse owner that decided to take a big bet on the media rights to British horse racing. The company owns a third share of attheraces business, which includes a dedicated digital racing channel, along with partners BSkyB and Channel 4. The consortium paid £307m for a 10-year contract to broadcast the sport, starting last year. The partners also have to meet the development costs of the venture.

While progress is being made in the attheraces media joint venture, yesterday's interim results showed that the returns will be pretty slow coming. For the first six months of 2003, Arena's share of attheraces losses were £5.6m, only a slight improvement on last year - it is supposed to become profitable in late 2005. During the interim period, there were 20,000 active punters using attheraces to place bets, out of 100,000 registered users. Betting revenues were £13m.

Group pre-tax losses came in at £2.0m, an improvement on the £3.5m loss last time, on turnover 22 per cent better at £19.1m. Physical attendance at its six racecourses was 17 per cent up as the sport gains in popularity. There's a big market to go for here - worth some $100bn worldwide - but attheraces does not seem to be impressing the City so far.

Arena's shares closed up 0.75p at 25p yesterday but the net asset value of the company is some 18-19p a share, says Dresdner, so not much value is accorded to attheraces.

Wait for more evidence of the success of attheraces.