Rank enlists the aid of Popeye

THE INVESTMENT COLUMN

This has been an eventful year for Rank. In February it sold a large chunk of its stake in Rank Xerox, the photcopying group, for pounds 620m.

That cut debt and released cash to spend on building the company's leisure businesses, which already included everything from Butlins holiday camps to the Hard Rock Cafe.

The theory at that time was that Rank had to make the names in its portfolio pay or run the risk of becoming a bid target. Since then the company has been busy, though precious little it has tried has come off.

It entered the bidding for the MGM cinema chain but lost out to Virgin. Then it was rumoured to be in the running for David Lloyd Leisure but was gazumped by Whitbread. Yesterday's announcement of the theme park deal with MCA adds little more than the financial details to an investment known about nearly two years ago.

In conjunction with MCA, Rank is investing more than pounds 250m of its Xerox cash in a new theme park next to their Universal City joint venture movie park in Florida.

The plan is to create a rival "destination centre" to Disneyworld, complete with themed islands based on Jurassic Park, Popeye and Spiderman.

All the dead-ends of the past year have taken their toll on the share price, which has drifted as the market waited to see which strategic direction the company would take.

Bolstered by a strong balance sheet, it has the choice of going on the acqusition trail like Whitbread and Bass, going for organic growth, or settling for becoming the GUS or the Argos of the leisure sector with special dividends or share buy-backs.

In the meantime its attentions remain spread over too many concepts, which means that just as one part of the business turns the corner, another falls into difficulties. Bingo has been hit by the lottery though the fall in sales of the scratch cards should help. The Butlins and Warners holiday camps must have enjoyed a good summer due to the weather. The Hard Rock Cafe is going great guns. The long list of other interests includes Odeon cinemas, nightclubs, casinos and amusement arcades.

Whatever happens in the economy Rank remains a safe each-way bet. If the economy slides back into recession it has a much stronger balance sheet than it did in the last slump when it had just bought Mecca.

If a true recovery materialises Rank should still enjoy an upswing; and break-up potential if a predator felt it could do better with some of Rank's slumbering brands, puts a floor under the shares.

Until the dust settles on a changed year-end and the Xerox deal, however, a forward rating of 14.5 looks high enough, especially unsupported by an unexciting yield of 3.8 per cent.

Sedgwick feels

the downturn

The downturn in the insurance cycle is clearly starting to bite at Sedgwick, the broker.

Despite denials from Sax Riley, chief executive, yesterday's forecast that results could be under pressure if current trends continued looked suspiciously like a profits warning.

As well as weaker rates, Sedgwick is having to contend with a weaker dollar.

The scars were already evident in yesterday's half-way figures to June showing pre-tax profits barely holding their own at pounds 63.1m, against pounds 63.4m before, with earnings per share flat at 7.3p.

Revenues broadly marked time, dipping pounds 2.4m to pounds 475m as insurance income edged ahead and the Sedgwick Noble Lowndes employee benefits consultancy slipped a touch.

The effects of a sagging dollar, which cost pounds 3.5m in translation and conversion charges, was masked in the first half by a pounds 4m increase in interest and investment income.

These figures could mark the end of the good times for a while. So-called retail broking in the UK - selling insurance from the composites to companies - was one of Sedgwick's strongest areas in the past six months, pushing revenues 11 per cent ahead to pounds 24.5m at constant exchange rates.

But excess worldwide capacity, combined with a relatively plentiful supply of good insurance risks in the UK, is now drawing in Continental players anxious to establish a position in a big market.

That has helped to pull commercial rates back a fifth in the past two to three months alone.The picture is similar in the United States.

Sedgwick has been quicker to cut costs than rivals such as Willis Corroon and actually saw expenses fall in the first half. But the wisdom of the strategy to move 50 per cent of its income to a fee basis looks more doubtful, given the problems that Noble Lowndes, the main fee-generator, is suffering from the absence of consumer confidence and the impact of regulation. Profits there fell 16 per cent to pounds 8.9m.

Smith New Court has slashed its full-year forecast from pounds 98m to pounds 86m, putting the shares, down 8p at 129p, on a forward multiple of 13. Given the outlook, and even taking account of a 6.3 per cent yield, the shares are a hold at best.

Hanson still seems plain

Hanson's third-quarter figures looked impressive enough, with underlying profits up 57 per cent as the benefits of the 1993 Quantum chemicals acquisition continued to flow, the effect of last year's Peabody coal strike disappeared, and other cyclical divisions pushed through useful increases. As usual, however, the conglomerate's share price remained depressed.

Hanson has been one of the worst- performing shares in the FT-SE 100, its price at 215.25p, up 1p, no higher today than it was seven years ago. During that period it has underperformed the rest of the market by a whopping 28 per cent, stymied by a combination of investment fashion, worries about Hanson's accounting techniques, and dull dividend-growth prospects.

Conglomerates have never been less popular, the only successful ones at the moment being those like Williams that have gone to great lengths to pretend they are something else. The market wants focus and punishes companies that fail to provide it.

With over pounds 5bn of provisions sitting in Hanson's balance sheet, the market also worries that it can never be completely sure that what it sees is what it is really getting. The dividend, which is covered less than twice by earnings per share, shows no signs of accelerating - as yesterday's unchanged 3p payment confirmed.

Finally, the recently-announced Eastern Group deal, so eagerly awaited, has been greeted with bored shrugs.

On the basis of forecast profits of pounds 1.4bn this year, the shares trade on a prospective p/e of 11. The dividend yield of 7 per cent, one of Footsie's highest, is attractive; but, with little growth expected, it should be. The shares are well supported but likely to remain dull.

Company Results

Turnover P/Tax EPS Dividend

Birkdale Group (F) 14.6m (22.6m) -2m (4.5m) -2p (-7.7p) -(-)

Blagg (I) 1.3m (1.25m) -148,000 (8,000) -0.47p (0.06p) -(-)

City Centre Restaurants (I) 51.7m (48.7m) 6.3m (5.8m) 2.27p (2.1p) 0.45p(0.45p)

Division Group (I) 2.5m (2.1m) 1.6m (-892,000) -3.8p (-2.5p) -(-)

Evans Halshaw (I) 430.4m(270.8m) 8.2m (6.9m) 17.1p (19.2p) 5.5p(5p)

General Accident (I) - (-) 253.6m(204m) 38.5p (33.6p) 10.6p(10.1p)

General Cable (I) 14.2m (9.6m) -10.9m (-9.5m) -4.5p (-4.7p) -(-)

Hickson International (I) 207.3m (208.6m) 6.1m (12.1m) 2.7p (5.6p) 2p(2.85p)

McDonnell Info Svs (I) 79.1m (68.6m) -1.7m (5m) -2.42p(3.48p) 1.2p(3p)

Sedgwick Group (I) -(-) 63.1m (63.4m) 7.3p(7.3p) 3p(3p)

(Q) - Quarterly (F) - Final (I) - Interim