Baker Street, London -- Now that the sun has risen again, the stock market can focus on its next potential crisis, the Y2K problem. That doesn't seem to worrying investors yet, however. They managed to reverse most of Tuesday's losses in the first two hours of trading this morning. Even the threat of higher interest rates on the back of the news that the Bank of England expects its inflation target to be exceeded didn't seem to dampen spirits.
If you're feeling depressed about recent falls in your Freeserve shares, spare a thought for poor old George Soros. His hedge fund, Quantum, bet that internet stocks would fall heavily this spring. Unfortunately his timing was out by a few months and he lost $700m. Quantum has also lost on positions relating to the euro and it is reported to be down 11% this year. His investors are said to be none too happy, and funds under management have fallen from $22b to $13b.
Billiton(LSE: BLT) was the leading blue chip this morning. Morgan Stanley decided that the stock is a "strong buy" rather than an "outperform". The price was also boosted by hopes of increased consolidation in the aluminum/mining sector as Alcoa bid $5.6b for Reynolds Metals and Alcan, Pechiney and Algroup announced their planned merger. The price rose 21p to 289.5p
Other FTSE 100 stocks in a buoyant mood this morning were GEC(LSE: GEC), up 24p to 590p, and Standard Chartered(LSE: STAN) up 50p to 878p. Both stocks have fallen quite heavily in the last month.
Psion(LSE: PON) had an excellent morning putting on 40p to 890p. This morning, Sony announced that it is considering selling mobile information terminals using Symbian's operating software in Europe early next year. Users will have on-line shopping and e-mail. Symbian is the joint venture between Psion, Ericsson, Nokia and Motorola.
Amongst the smallcaps, Slug and Lettuce(LSE: SLU) put on 13.5p to 157p. Its results, released this morning, were better than anticipated. Pre-exceptional profits came in at £2.15m, about 10% ahead of expectations. The company also announced that the president of Burger King (Europe), David Williams, was to become non-executive chairman. Williams also has had spells with Pizza Hut and Whitbread(LSE: WTB). Like-for-like sales in the current year were said to up 10.4% and the house broker is looking for profits to increase to £2.8m to £3.0m.
Most of the heavy fallers this morning were involved with electricity. Only last fortnight, Ofwat promised us all lower water bills. Now it is the turn of the energy regulator, Ofgem, to cheer the public. It published its draft price proposals for the 14 UK regional electricity distribution companies this morning. The average price reduction for 2000/1 is 25% to 30%. After this annual reductions of 3% below inflation are being proposed until 2004/5.
As with the water review, analysts were quick off the mark to determine who would be the biggest losers. Top of that list was Scottish and Southern(LSE: SSE), falling 13p to 542.5p. Others included Hyder (LSE: HYR), down 39.5p to 552.5p, United Utilities (LSE: UU.), down 66p to 730p and Powergen (LSE: PWG), down 11p to 592p. Analysts felt that dividends at all these companies could be under pressure due to the regulator's tough stance on operating costs.
Qualiport member Independent Insurance(LSE: IIG) disappointed with its interim results this morning. Operating profit came in at £24.6m, well below forecasts of £26m to £29m. The shares fell 15.5p to 303.5p. The culprit was unrealised losses on the group's investment float. Profits from underwriting, the group's core business, were up over 60%. Confused? Well, I will be attempting to dissect the results in tomorrow's Qualiport, and Bruce will be attending the analysts' meeting later today. Hopefully, we can present a clear picture of what is actually going on.
Do you remember all that fuss about changing the number plating system here in the UK, so that car dealers didn't suffer from such concentrated sales? Well, Perry Group(LSE: PRY) is now claiming that second half results will actually suffer from the lack of the August upturn. Their full year pre-tax profits fell from £4.9m to £3.1m. Perry also warned of continuing over-supply and the prospect of a major realignment in new car prices, courtesy of the government. As a result of all this gloomy talk, the shares fell 19.5p to 135.5p.
One Foolish maxim is to invest in what you know. At this time of the year most people tend to take a break of some sort. We all know what holidays are really like and all have a view on what makes an ideal holiday. Focus your mind then on this industry and decide whether it is one in which you would want to invest.
Picture this typical scenario, for instance. You walk into a travel shop on a high street. The beaming travel agent offers you brochures. You find out though that they all advertise holidays by the same tour-operating firm. Being in a rush to get away, you quickly choose a popular package deal. After several hours jam-packed in a chartered airplane you are deposited at your resort. Then, following two weeks of sun and sand, staying in a grey concrete hotel, you return home again via cattle-class, suitably relaxed and refreshed -- in theory.
What value has the tour operator added to your holiday though? If you had had the time you could have organised a cheap flight yourself and booked two weeks in the myriad of hotels on countless Mediterrenean resorts, probably at a cheaper price than the major tour operators.
The internet is increasingly ruling out the role of the middleman in many transactions. Numerous sites are offering flight tickets, hotel rooms and other holiday necessities direct to consumers. As this traffic increases, the margins of holiday operators are increasingly being eroded. In order to survive, over the long term, such companies will have to specialise in particular niches and cater for certain special interest groups or else organise trips to more remote places, which would prove too expensive to arrange independently.
The three giants of the UK industry, Thomson Travel(LSE: TRV), Airtours (LSE: AIR) and First Choice (LSE: FCD) were lucky to be able to keep their own branded travel agency chains following last year's investigation by the Monopolies & Mergers Commission (since renamed the Competition Commission). Thomson owns Lunn Poly. Airtours runs Going Places. But at least First Choice's shops are also called First Choice.
However, this report did prevent the tour operators from Wisely selling high-margin holiday insurance direct to customers who book supposedly cheap holidays with them, only to find they are forced to take out punitive insurance in tie-up deals. It is only by sneaky means such as this that large operators make any sort of profit at all. This is why the biggest area of growth in the holiday industry is cruising. The companies run the cruise ships and have, literally, a captive audience on these floating hotels.
Yesterday, Airtours, the UK's second largest tour operator, reported its results for the nine months to the end of June. Although sales rose almost 20% to £2.125b, last time's pre-tax profit of £1.4m became a £4.2m loss! That seems like a lot of effort to make a loss. Take into account the £2.8m spent on this period on the aborted bid for First Choice and the results look even worse. It will be a struggle to turn even a merged operation into a profitable set-up.
A final salutary tale concerns Thomson Travel Group, which only floated on the London Stock Exchange last May. The leading UK tour operator has lost its chief executive Paul Brett recently. And already the shares are trading at a 25% discount to their initial price of 170p.
Please post all feedback on this feature to the Lunchtime Fool message board.
Format for printing | 
E-mail page to a friend | 
Archive | 
Have your say
