For investors interested in UK motor-related stocks, the choice has shrunk since
our last survey. And, as Arthur Way notes, “apart from isolated pockets of
cheer, it is abundantly clear that investors are distinctly unimpressed with vehicle
distribution”.

Anyone preparing a thesis on the irrational behaviour of crowds would have
plenty of material to sift through by examining recent developments in world
stockmarkets. The second half of last year and the opening months of the present
one saw investors pile huge sums into “new economy” stocks -including
technology start-ups and unproven dotcoms with minimal turnover and scant prospects
of short to medium term profitability -while shunning rock solid companies in
the “old economy” with established brandnames and an impressive profits
stream from which to pay dividends.

A good example is provided by comparing Lastminute.com -perhaps the purest
representative of the “new economy” -with Scottish & Newcastle,
undoubtedly one of the strongest bastions of the “old economy”.

The former was floated on to the stockmarket amid considerable hype and at
a price of 380p a share, which gave an initial market capitalisation of almost
£570m. Subsequent trading saw the price reach a high of 550p, valuing
the company at more than £800m, despite a turnover barely into six figures
and the prospect of high losses for several years.

In contrast, Scottish & Newcastle – the UK’s biggest brewer and now poised
to become a significant player in continental Europe following the takeover
of Kronenbourg -has experienced a considerable weakening in its share price
during the past year to the extent that the company temporarily lost its place
in the prestigious FTSE 100. This occurred notwithstanding a consistently high
level of profitability and a progressive dividends policy. More recently, though,
there has been clear signs that the investing community has been reassessing
its priorities with the result that there has been a substantial sell-off of
technology stocks and a concomitant recovery in “old economy” stocks.

Another manifestation of the fever afflicting investor sentiment with regard
to the stockmarket in general and individual companies in particular is evident
from the exaggerated day-to-day movements in share quotations. Changes which
previously took several weeks or months to work through the market now routinely
occur in a single trading session while charting the share price movement of
even quite staid companies can reveal a pronounced yo-yo pattern.

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With regard to the performance of motor industry stocks during the past year,
a review of Table 1 indicates that, as always, there have been winners and losers.
The most important point to note, though, concerns the declining choice available
to investors who wish to commit funds to the UK’s automotive sector. This explains
why the “Motors 60” which appeared in the May 1999 issue of Motor
Industry Management has now shrunk to the “Motors 50” with no fewer
than 11 companies dropping out.

The deletions have affected companies in a variety of motor industry sectors
including component manufacturing, the aftermarket and vehicle distribution
and have occurred for one of three reasons: takeover, divestment of motor industry
interests or transfer to private company status.

The most common factor has been a takeover by another company, with seven members
of the 1999 “Motors 60” losing their independence in this way. The
most spectacular departure was that of Lucas Varity which was acquired by US-based
TRW. This followed the well established trend whereby an automotive components
industry is evolving comprised of increasingly large companies with global reach.
Also in the components sector, Adwest was taken over -again by an American group.

Consolidation in vehicle distribution was responsible for three companies losing
their quotations: Dagenham Motors, Evans Halshaw and Wyndham Group, acquired
by the Ford/Jardine Motors joint venture, Pendragon and Ryland respectively.

Unipart’s status as an increasingly significant force in the aftermarket was
confirmed when it purchased Partco, while possibly the most surprising motor
industry takeover of the past year featured Ford’s acquisition of Kwik-Fit.

In terms of scale, the biggest development in the “Motors 60″ rankings
stems from the loss of BTR Siebe, which has changed its strategy to become”a
global leader in the automation and controls industry” and, in the process,
has divested its automotive interests. In similar fashion, albeit on a loosening
its motor industry connections for some time and no longer qualifies for inclusion.

Meanwhile, two companies -Finelist and Tracker Network -no longer appear due
to delisting and their transference to the private sector.

The net result is that Table 1 contains just 49 companies from the list which
appeared in May 1999. This has been made up to a round 50 through the addition
of Salvesen C, the consumer and industrial logistics operator which has a heavy
involvement in the motor industry through Swift, although a rebranding exercise
is taking place which will see Swift’s familiar red-liveried trucks replaced
progressively by the Salvesen brand.

Whether Salvesen retains its independence long enough to feature in the 2001
listing is uncertain because, no sooner had the company been included in the
“Motors 50”, news broke that it had received a takeover approach from
its largest shareholder, such is the frenzy of activity which characterises
the current stockmarket scene. Indeed, already it is possible to anticipate
that at least four members of the present listing – Alexanders, Arriva, Britax
International and Gowrings -may not be eligible for inclusion by this time next
year due to a growing emphasis on their part on non-motor industry activities.
Moreover, the chances that there will be no further takeovers in either the
components or vehicle distribution sectors must be extremely slim.

Table 1 presents the “Motors 50” companies in descending order of
percentage gain from their share price low of the past 52 weeks. The table demonstrates
vividly that, even in the rather dull investment category which is represented
by the motor industry, there are spectacular gains to be won if investors choose
wisely and get their timing right.

Torotrak is the undisputed winner with an increase of 159% from the year’s
low. However, a review of the company’s high and low shows that its share price
has been highly volatile and that anyone unfortunate enough to have invested
at the top would have been suffering a 34% capital loss by mid-June. Torotrak
is developing an infinitely variable transmission system which may or may not
become the industry standard and is interesting insofar as the company represents
the new breed of stocks in which investors commit funds today to back advanced
technology in the hope of achieving spectacular long term returns.

Torotrak’s latest results were released on June 19 and indicate that a pre-tax
loss of £8.5m was incurred in the year to end-March, substantially higher
than the £4.8m loss of the previous financial year. Obviously there is
no dividend and the consensus among industry analysts is that consensus among
industry analysts is that losses will deepen in the current year and continue
until 2004. However, if things go well the long term returns could be in the
stratosphere and the company’s broker, Kleinwort Benson, is predicting annual
profits of £250m by 2013 on the assumption that Torotrak’s technology
becomes a winner.

Table 1
LEADERS AND LAGGARDS AMONG THE “MOTORS 50”
(Arranged in descending order of percentage gain from the low of the past 12
months, based on price quotations at the close of business on June 15, 2000)

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