Derek Pain: Analysts can still cause a stir on the stock market
No Pain, No Gain
Saturday 05 February 2011
City share analysts may no longer command the impact they enjoyed in pre-big bang days but they can still send a share soaring – or plummeting. Of course, like the rest of us, they sometimes make horrible mistakes. It is not unknown for a company that has experienced analytical adulation to shortly afterwards go belly-up. I suppose one of last year's casualties, Connaught, is a sad example of such misplaced faith.
Generally speaking, I am a fan of analysts. Many of these so-called City scribblers have years of experience to back up their predictions and undoubtedly perform extremely well. They are not as high profile as they once were. And the sensational report is now a rarity. The old joke that researchers appear to know more and more about less and less is not really justified, although in some quarters the degree of specialisation does seem excessive.
Analysts come in all shapes and sizes. Most are with the big City groups, but many of the smaller players have some on their books. A development in recent years is the growth of research paid for by the company under the microscope. The major stock market constituents would not dream of forking out for any analytical attention. I suspect they often feel they suffer too much scrutiny anyway, and with their shares actively traded they have no need to pay, as the stockbroker involved, sometimes the company's own City "shop", creates plenty of profitable share dealing from research. But small caps, generating much less investor interest, have no such drawing power, prompting the materialisation of researchers offering paid-for investment reports.
The emergence of ordered research is one example of the ever-moving face of the City. The positioning of analysts has also changed. In my younger days one of the most densely populated areas of the analytical community was brewing and distilling. Then there were more than 70 quoted drink shares and analysts like Colin Mitchell, who was with a stockbroker called Buckmaster & Moore, were City celebrities. From an army of maybe 50 drink analysts, he was voted the top player each year for about a decade. Nowadays the drinks industry is no longer a powerful stock market force following the continuous flow of takeovers. Few analysts now concentrate on drinks alone but are forced into the embrace of the much more wide-ranging leisure industry.
Recently four constituents of the No Pain, No Gain portfolio enjoyed analyst attention. Last week I mentioned the share performance of Lighthouse following comments by a researcher called Brokerlink. Others to get the treatment are Hargreaves Services, Mears and Whitbread.
Hargreaves, with interests ranging over coal, industrial services and transport, hit a peak of 912.5p after the stockbroker Panmure Gordon lifted its target price from 910p to 1,011p. In November the shares were around 680p. PG expects figures, due this month, to be accompanied by encouraging trading news, with winter snows thought to have driven demand for solid fuels. Mears is upgraded by the stockbroker Execution Noble from hold to buy with a 390p projected price, topping an upgrade from rival Investec which settled for 365p. Execution expects profits of £28.8m to have been achieved last year and is looking for £34.8m this year and £38.5m next. It says that in a period when the service sector saw some major casualties (Rok and the aforementioned Connaught), Mears kept a "disciplined bidding approach and continued to grow". The group picked up bits and pieces of the failed duo.
Whitbread, the budget hotel, pub/restaurant and coffee shop chain, was spurred 53p to 1,773p when the powerful investment house of Citi said the shares were undervalued. Whitbread has topped 1,800 in recent times. In the last century it was a leading brewer, and would have been one of the subjects that occupied Colin Mitchell and his rivals. But in the ferment in the old style and largely successful beerage that followed ill-judged government interference, it sold its breweries and pubs and is now regarded as a bastion of the leisure industry.
The portfolio is in the money with this trio. Hargreaves arrived at 417p; Mears at 372p and Whitbread at 1,105p. But despite its Brokerlink-inspired strength it is still sadly out-of-pocket with Lighthouse.
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