Smaller companies spotlight

EACH week, former Fleet Street City Editor

Teather tips could be your best bets

SO FAR, the 21st century has not been particularly good for investors. As the bells were ringing, fireworks exploding and even the Dome filled to capacity celebrating the new millennium, the FTSE 100 index was threatening to burst through the 7,000 barrier.

At 6930.2 the mood of optimism that engulfed the nation was recorded on the stock market. Today the index is some 700 points lower and, having had two bad years in a row, there is little evidence that many are looking forward to 2002 either.

But, as Chris Tarrant might say: 'We don‘t want to give you that,' we want to give you something to cheer about. Market experts believe the first quarter of the coming year holds the key. It could be a tough three months as companies use the events of the past year, particularly the US recession, to 'throw out the kitchen sink' with every other bit of bad news they can find when they produce their next results.

After that, however, things should start to look better 'if the US stabilises'. So, in a mood of unfashionable optimism, I have first of all tapped into the advice being given by the broking team at Teather & Greenwood whose mastery of research has won them Best Research Award in the Alternative Investment Market market four years in a row.

For a start they favour three companies in the pubs, bars, nightclubs, restaurants and beverages sector, where low interest rates and a cut back in travel because of recent scares, are compensating for modest negatives on the home front.

SFI is the top pick and is set to maintain its earnings growth in both the current year and in 2002/2003. The shares look very cheap, says analyst Nigel Popham. Next comes Luminar, whose high market share in nightclubs and late-night bars is set to increase. Popham expects a 'large, earnings enhancing acquisition in the early months of 2002, giving a significant boost to the share price'. And then there is Enterprise Inns, 'the leading player in the market for tenanted pubs with an outstanding record of earnings growth'.

For those who favour income rather than capital gain while interest rates remain low, above average dividend yields are likely from City Centre Restaurants, Wolverhampton & Dudley and Scottish & Newcastle. And finally, a small cap which stands out for its growth record, excellent prospects and low risk, is Belhaven, whose shares Popham 'recommends strongly'.

His colleague, Mark Reed, sees merit in First Choice, the tour operator who, he believes will recover more quickly from the slowdown than many others in the leisure industry. There is also the possibility that Airtours will win its appeal to the European Commission which could free it up to make a major acquisition which might well be First Choice.

Switching to pharmaceuticals, a sector forecast to show earnings growth of 8.3% next year and 8.2% in 2003, two of the smaller entrants, backed by Howard Miller and Stephen Waterman include Shire Pharmaceuticals and Celltech Group, both of which earn a 'strong buy' rating.

David Taylor believes construction and building materials is in for another good year, particularly with those companies involved in repair and maintenance on private/public partnership contracts. The sector has a long tail of smaller stocks, he says, and 'strong buy' recommendations are made for SIG, Marshalls and Travis Perkins, while Taylor 'is warming towards Speedy Hire'.

For what it‘s worth, a short straw poll around the markets shows a belief that after the first three months, and given that the US stabilises and there are no more 'nasties' on the terrorist front, the market may show a 500 point rise by the year end. What we do know is that when a recovery comes it is small-caps which tend to rise faster than the blue-chips, most having fallen faster in the slide. So, be ready.

Some you may have missed

THE Insensia Group, which bought Company Eye early this year and is publisher of Unquoted Magazine, has reported a loss of £163,802 for the five months to end September, in line with expectations at the time of its OFEX quotation in September. Plans are advanced for coverage of a second targeted market in the New Year, almost certainly it‘s going to be Alternative Investment Market companies.

INVESTMENT group Viatrade has recorded a pre-tax loss of £39,517 for the nine months to end September, which compares with a loss of £106,391 for the previous 12 months. The company has generated a fee income of £53,054 from its three investments and has £153,058 cash in the bank.

However, two of the three investments have hit snags. The value of its investment in Westbrook International, a consulting business, is being reviewed and may require a provision in the accounts, while Trainersite, a specialist recruitment company, has ceased trading and steps are being considered 'with a view to restructuring'.

Chairman Richard Henstock says 'the company is currently considering a number of potential investments and is particularly interested in joint investment projects and pre-IPO fundings'.

CITY Financial Associates, acquired by Abinger Investments a month ago, has negotiated its first major deal involving a £30.5m share offer for Expocentric on behalf of MICE Group

Some to watch out for

WORD in the market is that as many as 20 companies, including several venture capital funds and - it is said EMI - are showing interest in music group Boosey & Hawkes. As well as having a huge portfolio of musical rights the company has a new US management team following a huge loss in that region and is ready to fly.