Our picks for the shares of 1994: The Independent on Sunday staff select the companies they think will be the performers in the year ahead

SHARE TIPPING has always been a dangerous business, but this year it's more so than usual with share prices at record levels and the yield on the FT- SE 100 share index at an historic low of 3.5 per cent. Finding value in this market is like looking for a needle in a haystack. The following somewhat ad hoc selection of share tips from writers and contributors to the Independent on Sunday therefore carries more than the usual health warning.

JEREMY WARNER

Usually I would steer well clear of companies with a history of slipping on banana skins, but I can't resist this time round the temptation of opting for Costain, the housebuilding and contracting group. Two rescue rights issues in two years isn't much of a track record and the second of these - a five for four call to raise pounds 84m last September - flopped badly. At 28.5p, the share price is still saying that Costain is in danger of going bust; with the rights money now in the bank, that is definitely not going to happen.

Peter Costain's survival as chief executive despite the disasters of the past has angered some shareholders but, with the management around him bolstered, I would count this as more of a blessing than a curse. He may not be the best chief executive in the business but he's still one of the most respected contractors both internationally and domestically.

If the economy really is set to recover, the upturn will eventually feed through to the contracting sector and Costain will be a prime beneficiary. It's already a contractor for the prestigious new Hong Kong airport project. Another fact that gives me faith is the recent appointment of Sir Christopher Benson as chairman. He's not the type to take on a nightmare, and having now toured the operations he's confident there's a good, viable business in there. With a remuneration package linked to performance, he's also got quite an incentive to succeed.

WILLIAM KAY

When a share is flat on its back, the only way left for it to go is up - as long as it doesn't go bust, of course. But I am confident that the worst is past for Pentos, the retail group that owns Dillons bookshop and the Athena poster galleries.

Last year was horrendous. Stock problems at Athena led to losses and the resignation of the group's founder and chief executive, Terry Maher. And until the November Budget, the threat of VAT hung over the book trade. That threat was removed three weeks after Pentos found an experienced replacement for Maher in the shape of Bill McGrath, 53, who is steeped in retailing. After Cunard, Asda and Comet, he created the Builders Mate building supplies chain and then sold it to Wickes.

Pentos will prosper as economic recovery puts more spending money in people's pockets. At 25p the shares more than halved in 1993 but boast a 4 per cent yield to cushion them as McGrath gets to work.

PATRICK HOSKING

Trafalgar House is about as popular with investors as a rat in the Ritz, one of the group's better known assets. It has had to go cap in hand to shareholders three times now and is currently in the middle of its third refinancing. But the kitchen-sink write-downs mean the worst is over. And the discredited old guard have gone. Three of the divisions - shipping, hotels and housebuilding - all have interesting growth potential. At worst it's a punt on a group with pounds 4bn of sales but with a market value of only pounds 1.2bn. Hongkong Land, which is the long-suffering rescuer, is free to bid from April.

ROGER TRAPP

All the fuss about a rebirth for manufacturing notwithstanding, what strengths the British economy does have appear to be rooted in the service sector. Accordingly, having seen only a modest return on last year's recommendation - Menzies, the newsagents that also owns the Early Learning Centres - I am opting for Compass Group, the contract caterer and health care company that closed the year at 678p.

Co-founder Gerry Robinson may have opted for the limelight at Granada, but the management he left behind is highly rated and therefore well worth backing in these turbulent times. While many companies chop and change in the battle for survival, Compass at least seems to have something like a strategy, as demonstrated by last year's acquisition of SAS's airport restaurant and contract catering business and the deal with GrandMet to operate Burger King outlets both in railway stations and workplaces. Moreover, it has looked outside the usual charmed circle and, in Fritz Ternofsky, hired a non-executive with knowledge of brands as well as of the German-speaking parts of Europe into which the company is keen to expand.

TERENCE WILKINSON

The transformation in 1993 of Sidlaw, the Dundee mini-conglomerate, from an oil services and textiles group with a packaging offshoot into a packaging company with interests in oil services and textiles, has not yet fired the imagination of the stock market.

There was an initially upbeat response to the group's pounds 79m purchase in July of Courtaulds Flexible Packaging from Courtaulds chemicals group, partly financed by a pounds 53m rights issue. But Sidlaw's shares looked as if they were coming apart at the seams when they dropped to a low of 271p in early December compared with 325p in October and a rights price of 275p.

Indigestion after the four- for-seven rights call may partly be to blame. But Sidlaw will do well with CFP, which gives it exposure to Continental markets - hard pressed currently but likely to look better later in 1994, with relatively stable food industry customers. The expected pre-tax profits this year of at least pounds 17.5m imply a p/e of 13.5 at 305p - a sizeable discount to the packaging sector Sidlaw has now joined. Highly competent management, a very attractive yield of 4.5 per cent, covered twice, and a lowly geared balance sheet wraps up the case.

ROBERT COLE

My tip for 1993 is for gamblers. Lawn mower manufacturer Ransomes is heavily overborrowed, has published falling profits and in October failed to pay a preference share dividend. Debt gearing is 300 per cent, and for the last reporting period lower profits only just covered interest payments. But a recent change in senior management means there is reason to hope for a reversal in Ransomes' fortunes.

Chairman John Kerridge - former head of troubled pharmaceuticals company Fisons - and chief executive Bob Dodsworth have both stepped down. John Clement, former head of consumer groups Littlewoods and Unigate, became chairman and Peter Wilson - a hands-on manager with experience at the engineering conglomerate BTR - became chief executive.

Ransomes is a well-established, respected brand name in Britain for domestic machines, and the company also owns commercial grass-cutting equipment makers in the US (widely used on golf courses among other places). The new management will reorganise the product ranges and redevelop marketing initiative. A general improvement in the economic climate here and in North America will also help. The shares at 13p are near an all-time low. If Ransomes survives, the rewards will be handsome.

JASON NISSE

Yes, I must come clean. I tipped Fisons last year, for which I can only apologise. I made the recommendation with the best intentions, believing that with all the bad news that had emerged about Fisons' drug production and approvals, things could not get worse. They did. The scientific instruments side fell into losses and the group's chief executive, Cedric Scroggs, fell on his sword last month. Consequently, the shares have halved in value over the year. The chairman, Patrick Egan, must now turn the boat around or accept that Fisons will lose its independence. And that is why I am tipping Fisons again in the belief that it is always darkest before the dawn.

JOHN PHELPS

After a long period of underperformance, the mining group RTZ has been making up for lost time, with the shares up more than 100p in the past couple of months to around 810p. The fun should continue in 1994 as institutions look for 'late' beneficiaries of the anticipated pick-up in economic recovery.

As the world's biggest mining company, RTZ fits the bill nicely and will cash in on any hardening in metal prices, particularly copper, after demonstrating its resilience during recent tough times.

Chartists are drooling over the recent patterns made by the share price movements and so predict a lengthy period of out- performance. Robin Griffiths, at James Capel, says the current level of support indicates a break-out. 'I wouldn't be surprised to see the shares double in value,' he says.

On a more prosaic note, the balance sheet is in fine fettle following the pounds 800m sale of the bulk of its pillar business, and a gearing level of perhaps 14 per cent provides plenty of room for manoeuvre.

SIMON PINCOMBE

The City has mixed views about TSB Group. In October Panmure Gordon downgraded the shares to a fundamental sell on the grounds that they had outperformed the sector by 59 per cent since 1 January 1993. In addition, group net asset values have fallen to less than half the year-end price of 242p.

Despite this, Panmure concedes pre-tax profits will recover from a loss of pounds 47m in 1991 to profits of pounds 400m in 1994. The only caveat put forward is that, with the group's past record, something has to go wrong. More recently Strauss Turnbull has pencilled in pounds 500m for the year to October 1994, pounds 670m for the following year.

The share price premium to net asset value will correct itself as profits recover. And there is always the endless stream of takeover talk. Whether this a realistic possibility at anything above twice book value is a moot point. But keep on coming it will. Don't, however, expect much in the way of dividend growth, even if the group does sell Hill Samuel.

DAVID HELLIER

It's more than likely that in 12 months' time Lonrho will be a less controversial company than it is now, and it is mainly for this reason that I've decided to select it as my share for the year.

Since Dieter Bock became joint chief executive he's been busy normalising the company. Central costs are being pared down, disposals are happening (in spite of some hostility from Tiny Rowland), the Fayed case has been settled and by next year many of the well-paid, elderly directors will have left.

The key will be whether Bock has the strategy to build on the group's strength, its vast asset base. I have a sneaking suspicion that, backed by his new non-executives, he will. Whether anyone finds out where his money came from to buy into Lonrho in the first place is another matter.

The group's shares have already performed well from a low base, but they could see a further re-rating once the dust settles on past scores.

DIANE COYLE

Bowater, the packaging group, was extremely cautious about its trading prospects when it announced 1993's interim results in September. Its share price underperformed for much of the year.

Even though the interim results came in ahead of expectations, with pre-tax profits in the half year to June up by two- thirds at pounds 102.6m, the share price fell to 494p on the announcement and it ended the year at 455p.

Yet a series of acquisitions during the past few years has moved Bowater into higher margin businesses. The latest was its purchase of Specialty Coatings International, a US producer of coated films and papers. The bid was funded by a pounds 295m rights issue. Bowater's balance sheet is healthy.

The company's switch to production for niche markets such as health-care packaging, personal products packaging and coated films and papers, puts it in a strong position to benefit from economic recovery in its two major markets, the US and UK.

Analysts at BZW expect 1993 profits of pounds 213.9m, rising to pounds 247m for 1994.

HELEN KAY

My money is on Cable & Wireless this year. With profits up 35 per cent for the six months to September 1993, it is heading for a glowing full-year performance. The underlying profit growth at Mercury, its domestic telephone subsidiary, is running at 17 per cent and should go higher in the second half, while One2One, the new digital mobile network, enjoyed a successful launch - so successful indeed that C&W ran out of handsets completely.

The group's foreign strengths - including excellent relations with China - should allay fears about its Hong Kong interests. C&W has long been successful in presenting itself as an inoffensive little cable operator untainted by imperialism, despite the fact that its history is as full of pith helmets as it is of profits.

Under Lord Young, who is its suave chairman, James Ross, its impressive chief executive - BP's loss was undoubtedly C&W's gain - and a bevy of politicians from Michael Manley, ex-prime minister of Jamaica, to Fidel Castro, the group also has access to some high level international contacts.

At 522p, the shares are close to a historic high but still have further to go, I believe.

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