Thorny problems make Brambles one to avoid

Parkman still on recovery trail; Po Na Na looks high enough for now

It is not easy to feel sorry for the City's highly paid analysts. But surely this week's visit to the sheds where Brambles Industries, the world's biggest supplier of pallets, stores thousands of its crates must mark a low point in corporate entertaining.

Brambles used the visits to update the market on current trading and, contrary to all the speculation, it wasn't bad news. The shares, which have slumped 8 per cent in the run-up to the statement rebounded 13.25p to close at 312.5p.

Pallets are not sexy, but they have proved a source of strong, uninterrupted growth over more than a decade for Brambles' Chep business, which was part of GKN until last summer. Businesses are increasingly outsourcing as much of their supply chain as they can, and Chep's sheer size means it is best placed to supply the required crates quickly. The outlay involved in setting up such a pool of pallets means potential competitors have shied away.

While Chep dominates Australia and the UK, there is plenty of scope for expansion in the US and Europe. So why have Brambles shares gone nowhere since their debut? Well, for a growth company, there is little growth this year. While turnover is growing at its usual rate, profits at Chep are down as the management struggles to improve efficiencies. A handful of niggling problems need sorting out, and the company has had to spend on improving the speed with which it retrieves pallets it has hired out and updates IT systems for tracking pallets.

The trading statement reassured these are coming on, but it will be some time yet before the investment phase is over. There was at least good news as the new relationship with Wal-Mart generates new business from the US supermarket giant's suppliers. The Cleanaway waste business and Recall information management are also on track.

With the shares on a toppy 24 times this year's earnings, and 20 times next's, investors can afford to wait for the earnings growth to resume.

Parkman still on recovery trail

Ingenuity counts. That's the motto of Parkman, a little engineering consultancy, whose work in road and rail infrastructure, the water industry and, recently, education is making it one of the fastest growing companies on the stock market.

Parkman supplies its brains to local authorities, utilities and the Highways Agency, among others, and has orders for work totalling £150m. That is more than three times its turnover in the past year.

The company stands to benefit as companies and government agencies increasingly outsource the management of new engineering projects and day-to-day maintenance. It has more than made up for the loss of a road maintenance contract, its biggest, from the Highways Agency in February when Parkman chose to maintain its efforts to expand group margins rather than agree to reduced terms.

Margins are the main concern across the support services sector, as competition increases, but Parkman's are robust, on the evidence of results for the year to 31 March. These showed turnover up 28 per cent to £45.8m, and pre-tax profits up 94 per cent to £2.1m. Profits should almost double again this year.

Investors shouldn't expect that sort of growth to continue beyond next year, though. Parkman is still in recovery mode from problems of the late Nineties and, longer term, annual percentage growth is likely to be in the low double digits. That does justify the current share price valuation, at 15 times Baird Equities' forecast of 2003 earnings on yesterday's price of 136p, and suggests the stock is a hold.

Po Na Na looks high enough for now

Since the souk-themed bar operator Po Na Na moved from the Ofex market to AIM in 2000, it has provided investors with an experience more akin to Marrakesh's touristy souvenir markets than the exotic, Moroccan atmosphere of its bars.

As an entertainment proposition, Po Na Na – whose symbol is a winking man in a fez – is unique, but the shares have always been overvalued.

Christian Arden, its chief executive and visionary, is full of plans to bolster brand loyalty among its student and young professional clientele. After selling funky CDs, there is now talk of a cartoon for MTV.

But it is results that count, and they are poor. The group is selling 13 of its unbranded units after prolonged disappointing trading, which can only be put down to poor management. They pushed Po Na Na £5.3m into the red for the year to 31 March, compared to a profit of £1.5m before. That despite hosting School Disco, the retro club night that started at its London Hammersmith venue and has now swept the nation.

It has been forced to scale back unrealistic expansion plans, and the prospect of just four new Po Na Na outlets each year means growth will be muted. The shares, down 2.5p to 57.5p, look fairly valued until Mr Arden can prove he has put previous misjudgements firmly behind him.