THINKING SMALL IN A FINANCIAL MINEFIELD
Copyright 2001 www.variety.com

[ December 15th 2001 ]

It's a pity some smaller companies don't get more coverage, both from brokers and the media. The good news is that this can create opportunities for the questing investor. This week the Scottish brewer Belhaven reported excellent results.

Far from grovelling to shareholders about foot-and-mouth or the slump in tourism or the rain, this firm reported an 18 per cent rise in profits and a 10 per cent rise in the dividend as sales in the six months to September increased from pounds 28m to pounds 35m. In contrast to most of the big brewers who have been busily selling off their pubs to the likes of Nomura, Belhaven is still old-fashioned enough to run its own pubs, and these and the drinks business showed good progress.

The shares have risen to about 250p from below 200p at the start of the year when I bought some. Even after that rise one of the few brokers to cover it, Teather & Greenwood, describes Belhaven as "cheaply rated, low- risk and with excellent growth prospects". Cheers to that.

There was less pleasing coverage about another of my smaller company investments this week. Northgate Information Solutions, which designs systems for public-sector clients such as hospitals and police forces, has said that "new project work has dried up and it will take a while before we see a pick-up in demand". Couldn't be worse really, although some of us long-term investors will be punch-drunk enough to shrug it off, having lived through more profit warnings and refinancings than we care to recall.

I was foolish enough to invest in this company when it was spun off from McDonnell Douglas, of all things, in 1993. At that time it was known as McDonnell Douglas Information Systems, or MDIS for short, an abbreviation that, so it was quipped by City wags, really stood for Mired Deep In S***.

I can't really say why I still held the shares through all that, but the past two years and the change of name had seemed to offer some sort of recovery, and I entertained vague hopes that all the Government's talk about "investing in public services" would lead to some IT spend. Wrong there, too, of course. Still, the shares didn't react too badly. And on we go to small-company story number three.

Eidos, an entirely different sort of software concern that became celebrated for creating the cartoon figure Lara Croft. Although the company's losses have been reduced, with margins increasing, sales performance has been less ure. The new Who Wants to be a Millionaire game has not been selling as well as it might, while competition from a Harry Potter game has knocked Eidos's other products, such as Championship Manager, sideways. Another reason to hate the cutesy public school wizard. JK Rowling has a lot to answer for.

With the FTSE hovering nastily around 5,000 it looks like the recent mini-rally is petering out, and even some very remarkable increases in retail sales, up about 7 per cent on the year, don't seem to be able to lift the incipient gloom. Perhaps that's the problem, or the worry, that all those purchases of new cloths and digital gadgetry has been financed on the never-never on very low interest rates.

Private consumer debt is becoming as big a potential problem as it became in the boom engineered by Nigel Lawson when he was Chancellor in the Eighties. Anyone who is taking on a bigger mortgage should ask themselves what would happen to their monthly repayments if interest rates doubled. If more of us has wondered about that in 1988 or 1989 we might not have had that lingering hangover through the early Nineties. Have a good party.