JUST as ScottishPower looked as if it had straightened out its troublesome US power business, things have gone awry again.

There is nothing so dramatic as the Californian power crisis of the late 1990s, which burnt the Scots badly, or so costly as the $1 million a day outage at Hunter, in Utah, three years ago. But yesterday’s admission that PacifiCorp would not hit this year’s £1 billion profit target still took the glow off the group’s better than expected half-year profits.

More worrying than the news that a cool summer in the US had caused demand to fall was the warning that profits at PacifiCorp would remain flat for the next two years. PacifiCorp provides more than half the group’s profits now, so there is slim comfort to be had in the news of the UK operation’s sterling performance on the back of rising gas and electricity bills.

ScottishPower is currently investing £3 billion in PacifiCorp, most of which will be used to make sure that the company can supply an anticipated 2.5 per cent a year growth in electricity consumption in the Midwest markets it operates in.

That huge investment is the reason behind the flat profits for the US business over the next two years, but given historic volatility in the US operation it is not surprising that investors have reacted very nervously to this little wobble.

The nature of the US regulated energy markets is that companies spend money on infrastructure and are then allowed to recover that expenditure, in subsequent years. ScottishPower knows the system well now and is confident that profit growth will take off from 2007.

However, investors with a more short-term horizon will think it worth taking profits now, especially as the shares have climbed almost 12 per cent in the past six months. Rising prices for power in the UK have underpinned this share performance, but the UK generation and supply business represents only 13 per cent of the group, so rising bills and ScottishPower’s recent attractiveness to new customers make up for US shortcomings.

Finally, the wires business has a regulatory price review coming up, which looks set to be distinctly less generous than the water industry’s equivalent. Time to sell, despite the healthy 5 per cent yield.

Cable & Wireless

CABLE & WIRELESS investors relished news of a £250 million share buyback at the alternative telecoms group. Richard Lapthorne has clearly won himself many fans in the City during two years as chairman — since his arrival C&W shares have almost trebled in value. Shaken by the management of Graham Wallace, the former chief executive, institutional investors are now relishing C&W’s new mantra of financial discipline.

Indeed, restraint was clearly the focus of C&W’s interim results, which were headlined by a return to profits, as the company also announced 600 more job cuts and a move to cheaper headquarters at Bracknell. C&W is a transformed business from the one that was being lambasted in late 2002 as “the next Marconi” by Lord Young of Graffham, executive chairman of the company in the first half of the 1990s.

But scratching the surface of its interim results does not reveal anything that should provide investors with much comfort. Sales for the first six months of the year fell, and much of the earnings improvement was driven by reduced costs and interest earned on its £1.4 billion cash pile. Some core operations performed below expectations, particularly in Britain, where C&W admitted to suffering from pricing pressures.

The outlook for the second half is worse. C&W expects market conditions to remain difficult, and added that in mature markets, future profit growth would come from cost cuts and improving the sales mix. The company is well financed and is looking for openings to spend its cash, although some investors would prefer to see it handed back to them rather than spent on potentially costly acquisitions.

Improvements at C&W are clearly a slow burn. The company should be commended for its conservative approach, but a similar attitude should also be taken to C&W shares, which value it at about 12.5 times estimated 2005 earnings per share (eps). That is higher than BT, at ten times 2005 eps, which offers double the yield of C&W at 6 per cent. Look elsewhere.

Whitehead Mann

WEAKENED by profit warnings and failed assignments, Whitehead Mann, the headhunter, now finds itself a takeover target. For shareholders, who have seen the shares crash from 366.5p in January to 123.5p last month, yesterday’s gains are some consolation. But, at 166p at last night’s close, only those brave or rash enough to have bought in the wake of last month’s profit warning will have much to celebrate.

Interim results, out next week, should bring further clarification on the firm’s troubles in America, where a walkout by consultants is expected to knock £3 million off this year’s profits. But bid speculation will inevitably overshadow the numbers.

Early suitors Korn/Ferry and Heidrick & Struggles have timed their move perfectly, with the firm finding it hard to re-adjust under new management. The value lies in Whitehead Mann’s brand name which, while dented, remains a door-opener to blue chip clients. Debacles such as recommending Sir Ian Prosser for J Sainsbury and being dropped by Marks & Spencer will hopefully be a passing smudge.

The firm has much to do in winning back the confidence of investors and analysts who claim that they were misled over the US situation. The recruitment market remains tough, and the outlook remains uncertain.

Headhunting is all about personal contacts, and Whitehead Mann will be fighting hard to persuade its rainmakers from defecting. With so much uncertainty, the stock is, at best, a hold.

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