STAGECOACH’s performance over the past year has been enough to leave the most sanguine fund manager disgruntled. Then, just as the bus and train group is showing tentative signs of recovery, it has fallen victim to the Sars virus, which has hit Hong Kong bus revenues in the past month.

Sars underlines the unpredictability of Stagecoach’s overseas operations, most of which the company has now sold. However, the Sars effect, disclosed in yesterday’s pre-close trading statement, is more of a talking point than a catastrophe for the company. The virus has affected only one month’s takings and the threat could recede as quickly as it emerged. Indeed, the shares actually rose by 1½p to 41½p on better than expected news on the UK core of the group.

UK buses have seen year-on-year revenues rise by 5.1 per cent, with London buses doing particularly well, and South West Trains is expected to exceed last year’s earnings, partly boosted by compensation from Network Rail and some performance improvements.

Stagecoach’s UK operations are solid, reliable earners with experienced and skilled management at the helm. Unfortunately, the US situation is as far removed from the UK picture as it is possible to be. The Scottish group’s hubris in shelling out £1.3 billion for Coach USA, a collection of taxi, bus and coach businesses, has certainly come back to haunt it. Problems in the US were the main factor behind Stagecoach’s plunging share price last year and yesterday’s statement offered little hope that the problem would be solved rapidly.

Brian Souter, back in the chief executive’s seat, has put some Coach USA businesses up for sale, but will not be rushed. Hopes of news on the disposal progress were dashed yesterday and the company is sticking to a 12-month to 18-month timetable.

Meanwhile, trading in the US remains grim, with revenues likely to be 3.2 per cent down on 2002. Nor are there many bright spots on the horizon, as internal travel within the US continues to contract, overseas visitors stay away and operating costs, including insurance, climb.

Stagecoach’s shares have recovered strongly from their 12½p low in November and still look cheap against a 37p-a-share book value for Coach USA. However, without news on disposals it is hard to see what could trigger growth. Add the Sars factor and Stagecoach is still one to avoid.

Telewest

SURELY it cannot get any worse for Telewest? Last year the cable company finally admitted that it had become overwhelmed by its debts, forcing it to try to reach agreement with its bondholders, who hold £3.5 billion in debt.

In January that appeared to have borne fruit. The bondholders agreed to swap their debts for 97 per cent of a reconstituted Telewest. In the weeks that followed a confident — and credible — management team talked of turning a profit later this year, once the financial restructuring was complete. With the shares at a cheap looking 2.15p investors might be tempted into a trading buy.

That, however, would be a mistake. The shares might be lowly in value, but they are not cheap. At yesterday’s prices, Telewest’s bombed-out market capitalisation is £62 million. Shareholders are due 3 per cent of the new company, implying a value of a shade over £2 billion for Telewest mark two. Compare this with BT, which unlike Telewest pays a dividend. BT has 28 million residential and business customers and is valued at £16 billion. Each BT customer is worth £571; yet each of the new Telewest’s 2.2 million customers would be worth £909.

Nor can investors assume that the restructuring will take place on the terms outlined. Management’s winter confidence has dissipated as negotiations with the bondholders are dragging on. Not everybody is content with the 97:3 split because even that measly proportion leaves a lot for shareholders. The ratio will probably hold, but the actual market value of the reconstituted company is likely to be well under £1 billion.

Finally, there is a strategic problem. Between BSkyB, in which The News Corporation, parent company of The Times holds a 35.4 per cent stake, and BT, UK cable — NTL and Telewest — lacks scale. The two need to come together to match their competitors better. But that will not be on the agenda for months. Avoid.

PowderJect

POWDERJECT is unwilling to confirm that its suitor is Chiron Corporation, although there seems no doubt that Chiron, which was last in bid talks with the vaccines specialist last autumn, is back at the bidding table. In autumn, a possible deal collapsed on price, but that is much less likely to happen this time.

Chiron first swooped in October, when PowderJect’s shares had been marked down excessively at less than 230p. Talks collapsed the following month, but the shares have held up since, on fundamentals, at an average of about 400p.

PowderJect shares yesterday ran up 34p to 516½p, with the market expecting the company to be taken out at about 550p a share.

Back in October, we urged readers to buy PowderJect at 422p on the basis that the company was likely to be sold for more than 500p. A quick sale of those shares now would net a handsome profit of about 20 per cent, allowing for the bid- offer spread. However, should PowderJect shareholders hang on, perhaps in the hope of a rival bid?

PowderJect has clear attractions for Chiron, which, like PowderJect, is closely involved in vaccines. Although Californian, Chiron’s main trading is in Europe, whereas PowderJect’s is in North America, an area in which Chiron is determined to expand. Because of the specialised nature of vaccines, it is hard to imagine a queue of bidders waiting to spark a bid battle, meaning that Chiron’s offer may well be the only one in town. This brings the risk that if Chiron’s talks collapse for a second time, PowderJect shares will fall back. Investors might want to hedge this risk by taking some profits now.

Explore Markets

• United States

• Europe

• Japan

• China

• Russia

• The Gulf

• India

• Africa

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive