UFO Info Week-End

The result is that brokers are now forecasting that the dividend will grow by at least 12 per cent this

The result is that brokers are now forecasting that the dividend will grow by at least 12 per cent this year and next.So what to do with the shares? In the grand scheme of things, yesterday’s 10.25p fall to 411.5p is probably a bit of an overreaction. Willis Corroon and Sedgwick, the only two brokers of any size left in the UK, have born the brunt of the industry turmoil. If you have to hold an oil stock, Shell is probably the most attractive: it’s less exposed to the oil sector than its peers and has the benefit of more restructuring to come But, as always, change is going to be slow.. Chemicals suffered from the strength of sterling and lower margins in certain product areas.
The figure that worried investors most, however, was the drop in Shell’s return on capital employed to from 13.3 per cent to 11.4 per cent in the final quarter. Shell aims to get returns up to 15 per cent by 2001 and 13 per cent by the end of this year. But if the oil price does not improve, no amount of frantic cost-cutting will allow it to achieve that.In fact, the only spot of light was the company’s decision to raise the dividends paid by Shell Transport & Trading, its UK parent, to reflect the loss of the associated tax credit. The gloom spread virtually across all of Shell’s main businesses.

Exploration and production earnings fell because of the lower oil price and warmer weather, while downstream profits were hit by restructuring charges. For all the restructuring that has been taking place in the past twelve months, nothing could shield Shell from the combined effects of the falling oil price, the strong pound, and the crisis in Asia. Still, yesterday’s full-year results, which showed pre-tax profits falling by 36 per cent to pounds 1.8bn in the fourth quarter, making a 14 per cent fall to pounds 9.3bn in the full year, served as a useful reminder that the Anglo-Dutch oil giant is proving even harder to turn around than one of its supertankers. Despite the share price collapse BICC’s shares still don’t look cheap but it probably worth holding on in the hope that the illusive recovery is finally round the corner.. For a company of Shell’s size, one bad quarter barely rates as a blip. The cable swap should help 1998 profits to rise to around pounds 135m.

Despite chief executive Alan Jones’ best efforts, BICC’s shares have underperformed the market by almost 60 per cent over the last year and have fallen from 465.5p in 1994.Analysts forecast 1997 profits at BICC of around pounds 110m, putting the shares on a prospective PE ratio of 15. But equally, governments have all manner of things in their gift – such as airport slots, rail subsidies, public sector contracts and mandates for investment banking advice. Nobody is quite sure whether the cables market has reached the bottom. If it has, then BICC could emerge as the real winner from this deal, but it is a big if.All the big cables groups have taken huge amounts of capacity out of the market, but only time will tell if their actions have been enough to restore profitability.The extent of the industry’s problems have taken even the company by surprise.

So it is easy to see why Delta’s shares jumped 18p to 265p on the news.
The response at BICC, however, was more muted with the shares edging up just 0.5p to 140p. More importantly by chopping costs and focusing the business, it becomes more saleable. Jon Scott-Maxwell, Delta’s chief executive, has made no secret of the fact that the group’s future does not lie in cables as it cannot hope to compete with the largest players on a European stage This deal can only bring forward the division’s disposal. Delta appears to have got the best out of the deal in the short term.

It gets a pounds 5m cash payment and cements its position in the building and construction market. So yesterday’s deal to swap cable operations looks an eminently sensible move. The slump in the European cable market has produced a shocking share price performance at BICC and Delta. Revenge, Mr Prescott may reflect, is a dish best served cold.. LCR’s shareholders are contractually within their rights to pass the buck to the taxpayer.