Forum Archive Index - March 2002

["DR" <kat47@bigfoot.com>]

Ex Hemscott:

 

Guinness Peat, the activist investor group chaired by Sir Ron Brierley, has developed an impressive knack of sniffing out value in the stock market. So following on from Monday's look at Jack Petchey's investments (click here), today's 'Dig the Data' article uses Hemscott's research tool Company Guru to dip into the Guinness Peat portfolio. By Steven Frazer.

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Guinness Peat is well known in the City for throwing its weight around in the boardrooms of UK-quoted companies. Often the results are dramatic. Its 27% stake in Time Products, the UK watch retailer, was enough of a lever to convince management to buy out the company and take it private, handing many long-term investors a welcome exit.

Guinness Peat didn't do badly either. Having bought part of its Time Products holding at less than 100p, it sold its stake at the buy-out price of 190p.

Cashing in on smart investments like this helped the group more than double its pre-tax profits in 2001, although the results (click here), announced last Friday, were accompanied by a cautionary note from the group on prospects for the current year. It warned that such a strong performance was unlikely to be repeated this year, although a "superior performance" against the wider market was still promised.

As well as Time Products, Guinness Peat also made a killing on shares in the London Stock Exchange and Inchcape. In the case of the latter, it sold its 16% stake for nearly double what it paid after management initially rubuffed its call to break itself up and return cash to shareholders.

Below is a table of the companies in which Guinness Peat is still attempting to influence management decisions, at least those where it has discloseable stakes of over 3%.

(Click on the company name in our table to view the Company REFs page)

Company	Sector	Holding (%)	Market cap (£m)	Price (p)	Div yield (%)	PE	Forecast eps growth %	Discount to net assets (%)
Coats	Textiles	21.3	356	50.5	6	10	na	43
Dawson Intl.	Clothing	29.9	43	42	na	420	na	20
De Vere	Hotels	8.3	387	348	3.2	13	6	29
Gowrings	Restaurants & car dealers	11	10	108	4.6	8.5	41	35
Nationwide Accident	Car repair services	20.7	22	83.5	4.1	14	na	47
Quicks	Car dealer	21	39	96.5	5.2	11	10	20
Ryland	Car dealer	26.3	27	92.5	6	10	na	2
Stylo	Cothing retail	12.6	18	29.5	na	17	na	72
Tops Estates	Property	4.7	81	180	2	12	17	54

Source: Hemscott, prices as at 21 March.

Guinness Peat's biggest investment at the moment is its 21% stake in Coats, worth more than £70m. Coats is the world's biggest thread company, with subsidiaries in several countries. The lowly rating suggests there could be a reasonable amount of upside to the shares in the long-run, with analysts predicting 15% earnings growth next year.

But the sheer size of the holding suggests that Guinness Peat may want action to realise a bit of value sooner rather than later. Even if it doesn't precipitate charge,the shares' chunky prospective yield suggests that patient value investors may be rewarded.

Recent deals have seen Guinness Peat increase its stake in Quicks. On 6 March it snapped up another 50,000 shares in the motor dealer at 89p, raising its total stake to 8.4m, which equates to 21% of the company. That proved a smart move. Rival UK dealer CD Bramall yesterday confirmed that it would soon launch a bid for Quicks and the shares, up another 2p today, currently change hands for 98.5p, representing a quick 11% gain in less than two weeks for Guinness Peat.

Quicks is probably a boat already missed for most retail investors, likewise Nationwide Accident, which is desperately fighting off a 79p a share hostile bid from Guinness Peat and investment banking partner JO Hambro.

The bid for the car repair business, announced on the 14th of this month, was rejected the following day by Nationwide management, which described the offer as "derisory and opportunistic". Nationwide shares have since climbed to 83.5p, reflecting the market's belief that the bid on the table is too low.

Guinness Peat has also been stake building in Dawson International, the troubled cashmere clothing business. It recently added another 1m shares, again on the 14 March, taking its overall share of the company to 29.9%, just shy of the 30% level at which it would be forced to launch an all out bid for Dawson.

Recent newsflow has been pretty dire. Dawson said in February that the fourth quarter downturn adversely affected its spring order book and consequently its expectations for the first half of this year. This came alongside preliminary figures for 2001 showing sales down from £90.7m to £75.5m, while pre-tax losses widened to £4.2m from £3.5m in the same period last year.

As you might expect from an activist investor like Guinness Peat, many of the companies it has pumped money into have suffered calamities in the past. Investors will need a huge slice of courage to buy-in alongside the bigger group. But in any recovery situation, one must look beyond immediate events and the short-term and take a long gaze into what the future might hold. And, in the case of these shares, there is the added hope that Guinness Peat may use its muscle to shake things up, thus generating a profit for sharholders.

All of the above shares have their own limited attractions, but we would always caution investors to undertake their own research before making up their minds. D.