Investment Column: Carnival investors will find calmer waters

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The Independent Online

Carnival

Our view: HOLD

Share price: 2212p (+4p)

Carnival has something of a glorious history. The Anglo-US group, which has its headquarters in Panama, is the owner of, among others, the Cunard and P&O shipping lines and can trace its past back as far as the 18th century.

Of course, shareholders are interested in the recent past and have enjoyed the 40 per cent hike in the London-listed shares in the last year.

Indeed, anyone working in the travel or tourism industries has desperately been trying to persuade everyone recently that the sector is defensive in a recession.

That is only partly true: the travel industry is defensive, but the fact that Carnival's share price has tailed off by more than 16 per cent in the last three months might indicate that the market is nervous about what could happen to demand after the Government's planned spending cuts take hold.

On the face of it then, we would be concerned about Carnival. Fewer people will be off on cruises in the coming months, and that will continue, in our opinion, to knock the group's share price. Add into that a pretty measly dividend yield of less than 1 per cent and the investment case seems weak.

We would not be sellers, however. Despite the group's intrinsic link to the UK, Carnival is ostensibly an American company and that, we believe, will help to sustain it. Any cuts in US Government spending will have less of an impact on the spending ability of Americans, and anyway, any US austerity measures are unlikely to be as severe as those in Europe. American tourists have also been in clover over the last 12 months or so, as the dollar has strengthened against most other currencies, which will allow them to keep booking expensive tours around the Caribbean. Hold.

Morson Group

Our view: BUY

Share price: 90p (-1p)

Recent weeks have seen a flurry of activity from the engineering recruitment group Morson. Yesterday the company announced the £2.35m acquisition of Acetech Personnel, a subsidiary of Babcock International. The deal comes hot on the heels of the £7.75m purchase of Wynnwith Group early last month.

The Wynnwith deal absorbed one of Morson's key competitors, adding clients, contractors and market share. Yesterday's Acetech purchase adds weight to the group's existing business with Babcock. "Babcock is a longstanding, significant and exciting business operating across our core markets," Ged Mason, Morson's chief executive, said. "The acquisition of their 'in-house' recruitment business is a very welcome addition to the Morson portfolio and significantly strengthens the relationships with the Babcock Group."

Taken together, both deals are good moves, putting an already solid company in a strong position to benefit from the economic upturn. Given that the long-term contractor market held up well during the downturn, as employers grew even warier than normal of taking on the costs of permanent employees, Morson looks good. Altium Securities' price to earnings ratio of 8.1 times, based on this year's earnings estimates – as of early last month – also helps make the case.

The only concern – sufficient enough to buffet the group's share price earlier in the year – is the impact of public spending cuts on major infrastructure contracts. But Morson's involvement in non-discretionary markets, such as the energy sector, offers some insulation and the shares still look cheap. Buy.



Hyder Consulting

Our view: Buy

Share price: 338.75p (+13.25p)

Investors in Hyder Consulting must be pleased with themselves. First, takeover activity around rival Scott Wilson boosted hopes around other design and engineering consultants, driving gains in Hyder's shares. Second, Hyder issued its interim management statement yesterday, revealing that trading since the beginning of April has been "slightly ahead of the board's expectations".

Business, we're told, was spurred by strength in the company's Asia Pacific operations, which were boosted by strong sales, contract bonuses on project completions, and currency moves. Given worries about the sustainability of the recovery in the UK, this, along with the fact that over 80 per cent of Hyder's operating profits are derived from overseas, is a key strength, in our view.

Moreover, Hyder isn't expensive. The stock trades on a multiple of less than 9 times forecast earnings. On the basis of enterprise value to earnings before interest, tax, depreciation and amortisation, Hyder is on a multiple of just 5.8 times. Keep buying. Buy.

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