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Selling its slow-growing rail operation and removing the pensions overhang puts the leaner-looking Invensys firmly in play. A deal will likely come once rail is sold, although rivals know what's on offer and may not want to wait..........

Even without a deal, analysts at investment bank Barclays Capital think their estimates may prove too cautious (see table). Factoring in the loss of rail earnings in 2013-14 and stripping out both the special dividend and 67p of cash leaves Invensys shares trading on just 11 times forward earnings. That compares with Emerson on a forward PE ratio of over 12 times and software peers nearer 20. Add in earnings-enhancing acquisitions and a big deal or two and the shares could be worth 450p, Barclays says. True, disposal of the rail division still requires approval from shareholders, the UK pensions regulator and competition authorities, but there’s nothing to worry about. Following that, it looks like a question of when not whether the bid emerges.

City analysts reckon a buyer would have to find over £3bn, or 400p per share, double the company's June valuation and way above the current market price. Using a multiple of 9.8 times forecasts for 2013-14's operating profit and 25 per cent takeover premium, analysts at Nomura think the operations management division alone could be worth £2.2bn and the controls unit - on 8.2 times earnings - another £552m. RBC is more conservative, valuing IOM at just £1.5bn, or 10 times estimates of current year cash profits. But it thinks the software business, which will chip in less than 20 per cent of the division's sales, could be worth £900m on its own, and pricing the controls unit at just £400m looks cautious, as the recovering US housing market should drive demand for domestic appliances. Besides, when the gloves are off in a bid battle, strange things can happen.

That should be enough to interest rivals. "We suspect it may be only be a matter of time before Invensys is acquired once the sale to Siemens is completed - likely around May 2013," says Andrew Carter, an analyst at broker RBC Capital. And it's clear why. In June, Invensys acknowledged that US big-hitter Emerson Electric had come knocking. Others were interested, too, management said, but the situation has changed. Invensys is a thorn in Emerson’s side and the disposal of rail should be enough to re-ignite US interest. There'll be competition. Honeywell, Switzerland's ABB and General Electric will want a look. And don't rule out Siemens or private equity interest. All could easily afford what's left of Invensys and would love its impressive client list of oil majors, power generators and pharmaceutical giants. But it won't come cheap.

Shareholders will get £625m, or 76.7p in cash per share. More important, paying £400m upfront and putting £225m into a trust sorts out problems with legacy pension funds, long acknowledged as a serious barrier to a takeover. It will leave Invensys with £548m of net cash and a logical focus on supplying industrial software and control equipment to power stations, factories and oil refineries. This is IOM, the sexy, high-margin part of Invensys, which generates almost three quarters of the slimmed group's sales and profits. Strong demand for simulation programmes used to automate and sharpen up performance grew software sales by 16 per cent during the first half and control and safety systems flew off the shelves, too. Even demand for control equipment was steady, despite a slowdown in China, and enquiries are picking up. Crucially, emerging markets will chip in more than a third of sales and over half the order book. An end to annual pension payments of over £40m and restructuring costs of £25m a year will boost cash flow, too.

Bid speculation is nothing new to Invensys (ISYS). Even as Siebe and BTR strolled down the isle in 1999, rumours swirled of a rival offer, and it has followed the accident-prone conglomerate ever since. But selling the rail signalling business for a fortune and using the cash to resolve its pension-fund deficit removes the obstacles to a bid for what's left. The willingness of German engineering giant Siemens to pay over £1.7bn for Invensys Rail stunned the City. It was equivalent to the group’s market capitalisation prior to the deal and considerably more than anyone had expected – analysts at investment bank UBS valued it at just £1bn.

fact........ Smiths Group (SMIN) Share price: 1,176p Long-term break-up target with shares trading below sum-of-parts value Enough divisions trading well to meet City forecasts

True, adding speculative value to Henry Boot's share price requires some revival in the UK's housing market. In the absence of that, the share price is underpinned by net asset value of 130p per share (see table), yet that book value is based solely on the cost of Boot's would-be housing land. When land becomes consented it becomes more valuable and Boot is currently turning the stuff into plots with planning permission at the rate of about 2,000 plots a year. In other words, it is building a pipeline for plenty of future profitable revenues....as always dyor and good luck

Other opportunities include work for the prison service, the courts and national forensic services. And, with the government announcing a resumption of private-finance initiative schemes Boot hopes to win new work. It already has a 61 per cent stake in a contract to maintain the A69 between Newcastle and Carlisle, and work is starting to flow from its inclusion as a supply chain partner on a 25-year scheme to maintain roads around Sheffield. Henry Boot also runs a plant hire business, Banner Plant. Predictably, a slow down in construction work has dented demand for hire equipment but, after a slow start to the year, there are some early signs of demand picking up, although management is keeping a tight hold on costs until real signs of recovery show through. Finances are in decent shape, too. Last year's cash pile was turned by the half-year into a net debt of £22m, but this resulted from extra purchases of land.

Another attractions of Henry Boot is its diverse revenue stream. On the property development side, the group has a 200-acre business park it is developing with Derbyshire County Council; of this, 100,000 sq ft has been pre-let. Elsewhere, contracts have been exchanged for Tesco to develop a 31,000 sq ft store in Doncaster. Other projects include a joint venture with Calderdale & Huddersfield NHS Foundation to convert a 56,000 sq ft listed mill. This has been pre-let to the trust on a 25-year term. And, at the half-year, investment properties were valued at £145m (6 per cent up on the year). Construction is a sector that makes investors wary, but Henry Boot's construction division has been operating above expectations – the division remains on target to secure 60 per cent of its targeted revenue for 2013 by the end of 2012. And this is despite adopting a cautious approach to taking on new work, preferring to maintain profit margins at the expense of volume. Recurring revenue has played a part in maintaining income, with several long-term framework agreements already in place to provide social housing, notably in S****horpe, Manchester and Doncaster.

So, Hallam has been busy buying land. By the middle of November its land bank had grown to 9,069 acres. No value has been put on this, but a few months earlier Boot’s landbank was 8,761 acres and in the books at £68.1m. And within the current land bank over 20 per cent has planning consent. Hallam now looks well-placed to turn these assets into cash at a considerable premium to their book value. True, land sales have been pretty subdued this year, but management has built a significant pipeline of sites with planning consent that are about to be marketed. Furthermore, some of these are already subject to agreed terms, which means that Hallam has some buyers already lined up. And while the housing market is pretty depressed, any improvement would help to boost demand for consented land significantly.

Sheffield-based Henry Boot (BHY) may be a slow burner, but it has a lot of value locked away in its land bank. The group’s core business operates as Hallam Land Management, whose aim is to buy land, push it through the planning process and sell it, usually to housebuilders who are keen to buy building land that’s ‘over ready’. The advantages for housebuilders are compelling. True, consented land is more expensive than land without planning permission, but it does away with the need to employ the staff necessary to drag land through the planning process. And the cost of this is considerable. Analysts at broker Investec Securities reckon that over the past two to three years the cost of making a planning application alone has roughly doubled to around £500,000 for a mid-sized site of 500 to 1,000 homes. Buying consented land also does away with timing issues, because planning permission can take years to achieve.

St Modwen (SMP) Share price: 226p Strong growth in housebuilding arm Shares trade 16 per cent below net asset value

Meanwhile shares in Imperial trade on a multiple of little more than 10 times underlying earnings of 232p for 2013-14 forecast by Investec Securities and come with that nice yield and a rising payout. True, one day, making cigarettes may be criminalised. But that possibility seems sufficiently unlikely and/or far into the future to make shares in Imperial - with its relentless dividend growth - the essence of an 'old reliable'

There are also signs that the damage that Imperial caused itself through buying Altadis just before the Spanish economy slumped is starting to ease. In the year to end September, the company booked a £1.2bn impairment charge on its Spanish operations to reflect a 40 per cent fall in the carrying value of the assets. That should be the last of the major impairments in Spain as the operation has started to perform better – Spanish profits rose 6 per cent in 2011-12. Besides, investors had already discounted the impairments; City analysts say Imperial's accountants were simply catching up with what everyone else already knew. Tobacco's addictive qualities are both a boon and a curse for investors - they ensure steady demand, but also ensure the certainty of heavy taxation, law suits and increasingly tough regulation. Yet these risks have been a fact of life for cigarette makers for decades and have not prevented smooth growth in dividends.

Relying heavily on developed markets, where smoking is in long-term decline, is the chief reason why Imperial's shares are rated lower than British American Tobacco's. Imperial generates over half its revenue from within the EU. And the group could be hit hard by the introduction of controls on smoking and marketing of cigarettes that are starting to be rolled out across eastern Europe. For example, cigarette packs in Russia - Imperial's biggest market - now come with a health warning. However, regulations have not clipped sales growth yet. That's chiefly because Imperial has introduced still-higher prices in the countries that can most easily afford them. For example, a 25p increase in UK prices in July, along with changes in Russia, will start to feed through next year, keeping the company above the declining curve of tobacco consumption. Plain packaging is clearly a threat, but smokers – being addicted – have irrational loyalty to a particular brand.

Certainly, the returns on Imperial's shares have been impressive. Dividends and share buybacks totalled £2.5bn in 2011-12 and the shares offer a yield of 4.8 per cent on the current year's likely payout. Management seems determined to keep that performance going and has signalled that dividends will grow faster than profits over the next few years. The end result may be that Imperial will end up distributing perhaps 80 per cent of its net profits. And, over the medium term, analysts at Berenberg Bank reckon that Imperial's dividend will grow by between 9-11 per cent a year - that's a fair lick for a company in a no-growth industry.

Tobacco will quite likely ruin your health, but it might be good for preserving your wealth. By almost any measure, shares in tobacco companies have enjoyed a charmed life over the past decade. In that period the MSCI Global market index has almost doubled in value with the help of reinvested dividends. Simultaneously, 'global tobacco' has quadrupled, with some individual shares doing even better. It's feasible that the coming years could see more of the same, which is largely why Imperial Tobacco (IMT) qualifies as our 'old reliable' tip of the year. While many investors are not happy with the ethics of investing in tobacco shares, they still hold them almost as a matter of necessity. Given the choice between buying fixed-interest bonds that yield next to nothing and high-yielding shares that come with a low 'beta' - indicating that their price should not bounce around much - investors will choose the equities, even if that means owning the likes of Imperial Tobacco. And, with central banks determined to keep interest rates at record lows, these patterns - preference for high-yielding shares over low-yielding bonds - look like persisting.

fact..... Marston's (MARS) Share price: 122p 5 per cent yield on a payout that can now grow smoothly new pubs producing industry-leading returns

RSA Insurance (RSA) Share price: 127.30 ■ best yield in the non-life insurance sector - 8.4 per cent ■ profitable underwriting operation unaffected by Hurricane Sandy