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QUALIPORT
By
Carburton Street, London -- Disaster strikes the Qualiport! Early this afternoon, Independent Insurance (LSE: IIG) warned over its forthcoming full-year results. Poor trading in the group's French operation was partly to blame for a £20m profit shortfall. However, far more concerning was the re-emergence of claims within Independent's old London Market subscription business. The losses associated with this problematic business were said to have been finalised last year. So it's extremely disappointing to discover further "emerging issues" relating to this area creeping out of the woodwork. Was it Warren Buffett who said something along the lines of "the only surprises you get in insurance are bad ones..."? Rather than risk a rash investment decision and rush to produce a possibly incoherent Qualiport report, I'll defer any coverage on Independent until Monday. And with that news from Independent, perhaps the subject for today's feature takes on a somewhat greater importance... Qualiwatch Back in mists of time, Bruce commenced the Qualiwatch. It was an occasional feature covering companies that were deemed Qualiport material, but whose valuations were unattractive at the time. The two major companies on Bruce's list were Vodafone (LSE: VOD) and Glaxo Wellcome, now GlaxoSmithKline (LSE: GSK). A quick glance at the current prospective price to earnings (P/E) ratio of both companies, 65 for Vodafone and 31 for Glaxo, suggests they remain unattractive investments. However, it always pays to keep an eye on quality companies. Over the past few months, I've reviewed a handful of reasonably rated companies, which on subsequent reflection, I'd be happy to see in the Qualiport at the right price. Today's feature will update on the goings-on at those companies since their earlier reviews. Carpetright The day after my review of Carpetright (LSE: CPR), the company published a strong set of interim results. There were two highlights in the retailer's half-year statement. Firstly, the news that gross margins had increased by whopping 3.7% over the comparable period last year confirms Carpetright's dominance of its particular retail sector. (Most general retailers are currently struggling to maintain gross margins). Secondly, news of a mobile carpet service, store openings in Eire and an arrangement with insurance companies imply there's more to the company that its core UK chain. In my review of Carpetright, I stated: "My only real qualm with the company is that it doesn't operate in an organically growing market and is reliant to a heavy degree on the health of the housing market." On reflection, the same "low growth, economically sensitive" charge could be said of Lloyds TSB (LSE: LLOY) and Emap (LSE: EMA). However, Carpetright isn't acquisition-driven and exhibits a superior financial record to the two largest Qualiport companies. And at 576p per share, the company maintains a reasonable rating. Forecast earnings growth of 26% this year and 20% the next place Carpetright on a prospective P/E of 13.7, falling to 11.4 the year after. Coupled with a dividend yield of just below 5% too, switching from one of the slower-growing Qualiport companies into Carpetright has recently crossed my mind. Certainly the accounts of a retailer are far easier to analyse than those of a bank's. Latchways The latest interim results from Latchways (LSE: LTC) highlighted one of the investment question marks over the supplier of fall arrest equipment -- a lumpy income profile. Increasingly, Latchway's safety equipment is being sold in bulk and the timing of such sales somewhat distorts the financial picture. These timing issues, alongside infrastructure investment, led to the six-month results reporting earnings per share (EPS) dipping 4% on turnover just 8% higher. While Latchways remains a dominant player in a niche market and displays great financial characteristics, my only doubt concerns the long-term visibility of the company's sales prospects. There's not much of a replacement market in safety equipment, and when the market is served, Latchways could have nowhere to go. Anyway, at a share price of 476p, Latchways shares are no obvious bargain. Brokers are expecting 13% EPS growth this year and 18% the next, the forecasts placing the company on a forward P/E of over 20. And with no dividend yield to speak of, one to watch for now. Halma The latest interim results from Halma (LSE: HLMA) underpinned the "consistent, robust and unspectacular" conclusion of the company I gave in this earlier review. Aided by acquisitions, the six-month story told of sales, profits and dividends rising by 15%. To be honest, nothing much has changed at Halma since my August write-up (which is the way I like it!). An acquisition here and there, consolidating Halma's market leading in various safety areas, plus various new initiatives, including one involving fuel cell, will drive growth forwards. While I'm not a particular fan of acquisition-driven companies, I remain impressed at the management's distinguished record in this area and their attention to shareholder value. At 133p, Halma shares appear reasonably priced. Anticipated EPS growth of 10% this year and next place the company on a prospective P/E of around 13.5, a valuation supported by a dividend yield of 3.5%. A solid company, but no real bargain. Games Workshop A controversial candidate perhaps, given the Foolish outburst after my orginal review. In hindsight, the criticism appeared entirely justified after Games Workshop (LSE: GAW) promptly issued a profit warning days after the write-up. The investment reasoning behind Games Workshop was that of a "turnaround for long term growth". Various operational problems have dogged Games Workshop over the past few years, although the company's dominant position in world of wargaming still remains intact. The latest results from Games Workshop suggested the operational turnaround was well under way and was accompanied by upbeat growth prospects, especially concerning the US. At 226p, Games Workshop shares stand on a prospective P/E of 10 and offer a dividend yield of around 4.5%. While EPS is expected to be flat this year, growth of 15% is expected for 2002. Your turn Here's how I've ordered those four companies on various investment criteria. The most attractive company is the first in the list with the least attractive, the last. And overall? In descending order of Qualiport worthiness, I'll go for Carpetright, Halma, Games Workshop and then Latchways. Now, over to you. Of the following companies, which do you think deserves Qualiport status the most? Click here to vote. Where Next? Read the earlier Qualiport reviews in full: