QUALIPORT
Buy Prices for Quality Shares

By Maynard Paton (TMFMayn)
October 5, 2004

The Qualiport continues to benefit from running a watch list. When the list was first introduced in June 2001, the FTSE 100 stood at 5,948 and the portfolio was valued at £21,037. On Monday (October 4th), the blue-chip index had subsequently lost 12% (with dividends reinvested), while the Qualiport had gained 21% (to £25,431).

The Qualiport's watch list is updated and published at the start of every calendar quarter. It highlights the group of companies the portfolio has its eye on, as well as the 'buy prices' considered to represent attractive valuations for each share. The latest review of each company and its valuation can be found by clicking on the links within the list. Of course, as time passes, things change, so the buy prices will inevitably alter.

Importantly, the watch list should not be seen simply as a collection of tips. The Qualiport is run for Education, Not Recommendation. Note also that this Foolish portfolio is NOT a real-money portfolio and BIG mistakes have been made in the past.

So, in order of market value, here's the current list:

There are three points to note:

1. Member changes

The watch list has made one addition since the June update: Vodafone (LSE: VOD). The business quality of the telecom firm was reviewed here, with an 113p buy price set here. Indeed, the portfolio was a whisker away from buying Vodafone shares during the summer, when its shares touched 117p.

A recent update from Vodafone disclosed that its 'One Vodafone' initiatives are expected to achieve £2.5 billion of annual pre-tax free cash-flow improvements by the year ending 31 March 2008. Having reported free cash flow of £8.5b for 2004 and predicted £7b for 2005, the £2.5b improvement is obviously significant.

Though the portfolio's Vodafone buy price is based on the 2004 accounts, plus the company's forecasts for 2005, the management's confidence in setting the 2008 targets may prompt a buy price re-evaluation. Then again, a lot can happen in three years, and this portfolio has been undone by longer-term projections before.

2. Results and updates

With the Qualiport published weekly, there is no longer the space to provide a formal update on every watch-list share's results.

Following June's watch list, reviewed figures have emerged from Associated British Ports and Johnston Press. However, un-reviewed statements have come from Gallaher, Games Workshop, GlaxoSmithKline, Renishaw, Rotork and Ulster Television. This table summarises their underlying progress:

The six sets of accounts did not provide any great surprises -- good or bad.

Also since June, trading updates have been issued by Emap, Halma and Imperial Tobacco. All three confirmed trading was in line with expectations, though Emap referred to tough conditions experienced by its French publishing unit, Imperial emphasised a challenging German tobacco market, and Halma noted the weak US dollar having a possible impact on profits.

3. Capital Radio and GWR

By far the biggest watch-list development over the past three months has been Capital Radio's proposed merger with fellow broadcaster GWR (LSE: GWG). The deal follows the introduction of the Communications Act late last year, which relaxed the rules concerning the ownership of commercial radio stations, and months of sector speculation.

On the face of it, the merger looks sensible. The two groups -- already numbers one and two in terms of sector revenues -- will combine to form the industry's leading player by some margin. The firms have different geographic coverage, there'll be obvious cost savings and there is no takeover premium involved, as well. One clear downside is that Capital chief exec David Mansfield will take up the same position in the enlarged group. This watch-list study shows that Mansfield has not been performing as well as his pay packet suggests.

A future Qualiport article will look at Capital's planned deal and set a post-merger buy price.

Maynard owns shares in Associated British Ports, Games Workshop, GlaxoSmithKline, Halma, Johnston Press and London Stock Exchange.

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