Investment: BAA's sky-high mood is justified

SHAREHOLDERS in BAA were given several reasons to be cheerful yesterday when the airports operator announced its half-year results.

The once-pilloried Stanstead airport saw passenger numbers jump by 30 per cent and it expects to handle a record seven million passengers in 1998/99. Passenger traffic across BAA's airports rose by 7.6 per cent - well above the annual trend of just 4 per cent.

Second, BAA's new pounds 600m train link to London, the Heathrow Express, is performing well. Passenger numbers are slightly disappointing at 11,000 a day against a 13,000 target, but customer satisfaction levels are high so numbers should grow through word of mouth.

Pre-tax profits in the six months to September slipped slightly from pounds 310m to pounds 307m, but this was because of a technical accounting change on income from airport charges. Revenues, which were up 21.8 per cent, give a better guide to performance.

BAA's retail operations have also turned in a reasonable performance. Despite adverse currency fluctuations, UK retail income is growing and there was a pounds 24m profit from the sale of its 75 per cent stake in the Cheshire Oaks factory outlet.

But BAA's biggest plus point is the growing signs that there may be an indefinite delay of the abolition of duty-free shopping within the European Union, due in July next year. The abolition is set to cost BAA around pounds 77m in lost profits.

On current year forecasts of pounds 500m, the shares - up 22p yesterday to 694.5p - trade on a forward p/e of just over 19. This is hardly a premium to the market and would look good value if the abolition of duty-free is delayed