City File: Water shares circle political whirlpool

WATER shares were naturally bubbly on Friday, following what the City clearly regarded as the generous pricing regime announced by the regulator.

They were buoyed by the prospect of regular dividend increases from shares that are already yielding often nearly 5 per cent.

So now is the time to get out: the prices totally disregard the considerable political risks facing the industry.

The industry, and its bosses, are unpopular enough to be a sitting target for an opposition anxious to prove that privatisation is not an unmixed blessing.

This could be especially serious for the already embattled South West Water, which is under attack not only from the regulator but also from the politicians - especially the Liberals, the biggest threat to the Tories in the region.

But if necessary, the Government will not hesitate to sacrifice all the companies in the interests of electoral success.

CITY FILE has been a fan of British Petroleum for the past two years, ever since David Simon took over what appeared to be a waterlogged ship.

Under Simon, the shares have more than doubled to 412p. Yet there's no reason to jump ship yet.

Fergus MacLeod at NatWest Securities believes that this week's figures for the second quarter will show profits up by a full 23 per cent, largely thanks to rising oil prices and improvements in BP's long- troubled chemical interests.

This, Mr Macleod says, 'is likely to be one of the best performances in the international oil industry and suggests that BP's recovery has further to run in profit and share-price terms.'

THE INSTITUTIONS have gobbled up shares in Pillar Holdings, the most serious property company to come to the market for quite some time. This is not surprising: its bosses, Raymond Mould and Patrick Vaughan, showed perfect timing when they sold their previous venture, Arlington, to British Aerospace at the very top of the boom. At 150p, Pillar is valued at an ungenerous 5 per cent discount to its asset value.

But these have been soberly valued, and Mr Mould and Mr Vaughan have already shown that they retain their eye for bargains among the many semi- developed properties being sold off by institutions, which increasingly prefer to buy shares in property companies rather than manage property themselves. No immediate fun, but a splendid lock-up.

CARLTON has fallen back this year to under 900p, after the price soared from 400p to around 1,000p in two years. This covered the period when Carlton gained the London franchise and swallowed Central TV.

Since then, doubts have crept in, mainly because of concerns over the threat from the services available on information superhighways to Technicolor's massive profits from video duplication. Katherine Pelly at Kleinwort Benson argues that the threat is very long-term.

In 1995, she argues, profits from broadcasting will account for over a third of Carlton's profits and this is not reflected in the share price, since even Pearson, a 'mixed' stock with some broadcasting interests, stands at a 30 per cent premium to the market, double Carlton's. Undervalued.

IT IS sometimes sensible to buy into a good company after a Great Man leaves.

So it is with Premier Consolidated Oil, whose septuagenarian chairman, Roland Shaw, left the company he founded last week. The shares, which barely moved to close at 27p, take no account of the company's varied prospects, ranging from the politically safe North Sea to a host of politically unsafe but juicy prospects off Cuba, Albania and Pakistan. The best of the smaller exploration companies.

THE MARKET took kindly to the curiously named Freeport Leisure, putting shares on a 5p premium to the 65p at which they were placed early last week.

The market is right: Freeport has blazed a trail in opening the first 'factory outlet' shopping centre in which upmarket retailers such as Benetton and Laura Ashley sell goods surplus to normal requirements.

The centre has been a great success - even in Hornsea, east of Hull - and Freeport is applying the same formula at a bigger centre in Lancashire.