The Week In Review
Saturday 15 July 2006
As swansongs go, this week's first-quarter trading figures from GUS were far from bad. Sales at Argos, the bedrock of its ARG retail division, outstripped even the group's expectations, while Experian, its financial-services arm, had yet another stellar performance.
Yet GUS failed to excite the City. Never mind Great Universal Stores, the group's full name as was, what GUS really stands for these days is Great Untold Stories. This is one reason why the management has decided to break up the conglomerate. It is spinning off its two arms into two new companies.
The demerger is set for October. Shareholders will receive shares in each company, leaving it up to them whether they hang on or sell out. Given that most analysts regularly ascribe a £11-plus sum-of-the-parts valuation to GUS stock, the hope is that once the traditional conglomerate discount has been eradicated, the shares will soar.
This column has long been a fan of GUS, and rightly so, on the whole. Figures this week showed there were chinks of light in a black high-street cloud. Namely, the 7 per cent rise in like-for-like sales at Argos. Buy.
While much of the consumer-facing media industry is struggling, much of the business-to-business magazine sector is seeing the good times flow. Centaur is feeling so good that it is to put its full-year dividend up by a whopping 76 per cent. Centaur listed at 100p in March 2004. It has not made much progress since then but, with prospects looking rosy, the shares are trading on 15 times 2007 earnings, which makes this a buy.
Following its exit from the troublesome State of Victoria contract, Anite, the technology company, this week turned in full-year results that beat expectations. At £24.7m, profits before tax comfortably beat City forecasts. That spurred the shares, despite revenues of £170m being a touch disappointing. The company is on track to realise further value across its various businesses but the pay-off may take some time. Hold.
Bespak shareholders were given a welcome shot in the arm this week by annual results from the drug-delivery specialist much improved on last year, and above City expectations. At £13.5m, profits before tax and special items were 24 per cent higher in the year to the end of April. Interesting growth prospects may make Bespak the choice of investors looking for a health-care company with a strong yield. Buy.
INTER LINK FOODS
Even Mr Kipling would be forced to concede that his arch-rival among the country's cake-makers, Inter Link Foods, has delivered exceedingly good annual results. The Blackburn-based baker, which supplies Tesco and J Sainsbury, appears to have put May's shock profits warning behind it, unveiling record annual profits for an eighth successive year. Inter Link a rare exception that proves the rule: investors can have their cake and eat it. Buy.
It has taken some time, but Autonomy, the internet infrastructure software company, has finally started to motor. The acquisition of its key rival, Verity, last year propelled the company into a position of clear market leadership. The results will be reported in full on 26 July, but are comfortably ahead of what was reported in the seasonally strong first quarter, when revenue was $56.1m and adjusted pre-tax profit $10.3m. Buy.
With the online gaming industry still booming, its leading supplier of money transfers would appear an odds-on bet. Neteller has enjoyed a stellar run since its stock-market debut in 2004. But there is no such thing as a sure thing. Bad debts in Canada are on the up. So are costs. Margins are thus being squeezed. With bets still being taken on whether an anti-gambling US administration will crack down on internet gaming, Neteller continues to look a risky punt. Avoid.
InterContinental Hotels Group has been a five star investment since it was cut loose from the old Bass brewing empire. The company has been free to pursue its single-minded strategy of selling-off assets to focus on management contracts - this week another seven hotels disappeared in all but name. Given the strength of the group's stock, this column was perhaps too cautious when it recommended just holding the shares a year ago. Buy.
e2v Technologies comprises two divisions: electronic tubes and sensors. Both are high-margin operations. City analysts reckon the scale, complementary skills and earnings enhancement that this week's $140m acquisition of e2v's French peer Atmel Grenoble brings leaves e2v shares looking attractive. Trading at little more than 12 times expected 2007 earnings of 18.5p, they are a buy.
Surfcontrol, a maker of internet filters, was once highly valued, but has struggled. A series of failures led to Patricia Sueltz taking the helm a year ago. She overhauled sales, marketing and distribution while leaving the company's products as they were. Surfcontrol's software, rather than being sold directly to customers, was distributed through re-sellers. Growth returned and billings picked up.But while the shares are cheap, there are doubts about Sueltz's purchase of an e-mail filtration specialist for £20m. Avoid.
The above recommendations are taken from the daily Investment Column
Man is doing what a hedge fund manager's gotta do
Man Group has come a long way in two centuries. From its origins as a Thames-side sugar trader founded by James Man, it has morphed into the world's biggest listed manager of hedge funds.
These are essentially money-making machines, with Man Investments' managers able to utilise a wider range of strategies and markets than traditional long-only rivals in pursuit of higher returns.
That flexibility means the group, led by chief executive Stanley Fink, is forging ahead. Before its annual meeting for shareholders, Man revealed this week that its funds under management grew by $4bn to $54bn over the three months to the end of June. Sales of $5.3bn in that time far outpaced the $1.3bn in the same period last year. The growth of private investment is easily outpacing institutional demand as millionaires scramble into the once-heavily guarded funds.
The shares are trading at about 13.5 times projected 2007 earnings (allowing for performance fees), against traditional fund managers' shares trading at more than 15 times forecast earnings. Should Man Financial be spun off, Man Investments would be trading on less than 12 times projected 2007 earnings. Buy.
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