Scrutineer: Opportunity for upstarts

Published on Friday 21 August 2009 21:36

Lloyds 101.6p+0.4p Cineworld 158p -0.5p

ANOTHER day, another wall of silence from Lloyds Banking Group about its decision to reverse its plans for Cheltenham & Gloucester. Except we do have at least two potential buyers if Lloyds has decided it wants to sell.

Virgin Money and Tesco are the new kids on the financial block who come to the sector with untarnished blue-chip reputations, eager young managers and a track record of successfully gatecrashing other sectors. Both aspire to become fully-fledged banks and snapping up Northern Rock or C&G would give either a clear foothold in the market.

The Virgin name has been pinned to all manner of businesses from record shops and mobile phones to airlines and now financial services. The supermarket chain is no longer simply Britain's biggest grocer and, with former Royal Bank and HBOS executive Benny Higgins now ruling the roost in Scotland, Tesco will add loans and current accounts to a fast-burgeoning shopping trolley.

Don't discount the big two from eventually making headway over the established players. They were already making their mark at the margins before the banking crisis severely damaged the public's relationship with traditional banks. Now it is likelier still that the public will undertake their personal finances with alternative providers.

Yet there is also a need to temper some of the excitement around the new players. Virgin boss Sir Richard Branson has a love-hate relationship with the City while Tesco was expected to make a more compelling case for its entry into banking when it unveiled 800 jobs in Glasgow this week that had already been leaked to the press earlier this month. Some even expected the company to spell out its plans for commercial loans and mortgages.

In the absence of such a commitment, the company risks missing the opportunity to seize the moment. Investors in Tesco know that growing its core market is becoming increasingly tough and it needs to move into new ones and more quickly. A move into insurance, with the promise of more jobs for Glasgow, is also being talked about.

As for Lloyds, the picture becomes less, rather than more transparent, with the bank's key spokesmen away on holiday and junior staff left to deflect questions about its embarrassing U-turn.

It is unusual for boards to make such a major shift, and so soon, as it undermines their credibility. Just ask Diageo. Its management has resisted attempts to overturn a decision to close the Kilmarnock bottling plant in spite of a welter of opposition.

So it appears that the change of position on C&G was not directly of Lloyds' choosing. Or else it acted in haste in June when it announced that 164 branches would close, affecting 900 jobs. That would raise more questions about the board's ability to spot an opportunity that is now suddenly so obvious.

With Brussels wanting Lloyds to sell assets as a condition of receiving state aid, there is a clear case for selling C&G to reduce the bank's grip on the mortgage market.

Cinema projections good

THESE are exciting times for the cinema industry. Cinemas are not only holding their own during the general downturn in the economy, but they are about to benefit from the next revolution in film-going, as new 3-D technology transforms the whole experience.

The launch of Avatar, likely to be the most talked-about film of the year, will stimulate further interest, particularly among the young who are an important demographic. In an age of sophisticated home-viewing technology, they need to get the cinema-going habit if the industry is to survive. Aside from regular blockbuster releases that people actually want to see, innovation will be the key to persuading people to leave their homes for the big screen.

Figures released by Cineworld, the second biggest chain behind Odeon, show that new ideas are helping the top and bottom line. Revenue for the half-year was up 13.8 per cent while operating profits rose 12.8 per cent. Admissions were up 18 per cent and the number of customers signed up for the company's Unlimited card – which allows any number of visits on payment of a monthly fee – also rose 18 per cent.

The firm has also persuaded cinema-goers to continue spending almost as much on popcorn, pick-and-mix sweets and soft drinks, a credible result in cash-squeezed times.

The development of 3-D cinema – which promises to be a huge advance on what has been around for half a century – should persuade them to pay higher ticket prices, adding further to income.

Bryan Johnston of Brewin Dolphin

ONE TO WATCH

BTG

193.8p +5.7p

Scotsman says BUY

BTG develops and commercialises products targeting critical care, cancer, neurological and other disorders.

The company is also acquiring new products to develop and market to hospital specialists and is building a sustainable business financed by revenues from sales of critical care products and from royalties and milestone payments on partner products.

Its product pipeline includes Voraxaze, which is available in the US under a treatment protocol to offset the risk of methotrexate toxicity, which can develop as a consequence of certain types of cancer treatments. Varisolve is a treatment for varicose veins, while OncoGel has been developed for the treatment of oesophageal cancer.

BTG has established net revenue of about 64 million from product sales and royalties. It has an in-house development pipeline with six well advanced programmes in development and seven key out-licence products, which carry milestones and royalties.

BTG has an impressive "portfolio" of drugs under development and an established existing revenue flow. As with any evolving pharmaceutical company the investment argument could fall apart if any one of its core developments ran into trouble.

On the other hand, its potential markets, particularly for CytoFab, are enormous.

BTG's shares are not without risk but the developments to date have been most encouraging. It is well financed and its armoury of products in various stages of development, allied to an existing revenue stream, appear a healthy argument for considering the shares further.

&#149 The value of your investment could fall and you may get back less than you invested. You should take professional advice if you have any doubt about the suitability of this company for your portfolio.

Crude price surge boosts oil stocks

SCOTS STOCKS

OIL shares continued their recovery yesterday as crude prices hit 2009 highs on low stock levels and hopes of an economic recovery.

Cairn Energy shares jumped 4 per cent to 2,600p, while North Sea-focused Dana Petroleum rose 21p to 1,525p, despite expectations that both will report a sharp fall in first-half profits next week.

Edinburgh-based Melrose Resources , which also reports interim results next week, rose 4.7p to 353.7p, its highest level since last September.

Oil services heavyweight Wood Group rose 7.5p to 316.6p.

Venture Production lifted 1.5p to 842.5p, just below the level Centrica is willing to pay for control of the company, after the European Commission said the hostile takeover raised no competition issues.

Trading in the shares surged after the EC decision, on talk that JP Morgan Cazenove, which is advising Centrica, was bidding for stock.

Borders pharmaceutical company ProStrakan has jumped to an all-time high, boosted by Thursday's bullish first-half results and prediction that profitability is only a few months away. Shares in the Galashiels-based group closed up 9.3 per cent at 135p.

Johnston Press, owner of The Scotsman, rose 2.75p to 31p, its highest close since May. The group reports interim results next week and is due to give an update on renegotiating its bank debt.

Energy-related companies also rose on hopes of an upturn in economic activity. Perth-based utility Scottish & Southern Energy rose 27p to close at 1,113p.

Kentz wins second lucrative contract Down Under

SMALL BUT BEAUTIFUL

ENGINEERING and construction group Kentz has won a second contract relating to the Gorgon project in Western Australia.

Kentz yesterday revealed it had won a A$150 million (75m) telecommunications contract from Chevron for work on Barrow Island.

In June, Kentz was awarded a contract to design and build the construction village on Barrow Island.

A final investment decision on the project – which is a joint venture between Chevron, Shell and Exxon-Mobile – is expected in the autumn.

Plans for the Gorgon project, approved this month by Australia's environment minister, include gas, liquified natural gas and carbon dioxide injection schemes.

Kentz, which has a market cap of about 200m, has been working on projects in Western Australia for more than 20 years and has about 200 Australian staff through its construction arm, Thiess Kentz.

The group is listed in Aim but has its UK and Ireland office in Co Tipperary, in the Republic of Ireland.

News of Kentz's contract win comes a day after Aim-listed airline Skywest said it was predicting a rise in passenger numbers if the Gorgon project goes ahead.