The Week In Review

Investors still can't see fund of wisdom at Amvescap falls short of a fund of wisdom
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The Independent Online

The Anglo-US fund manager Amvescap has had a rocky ride over the past five years, as it has struggled to rebuild its shattered reputation in the wake of the US market-timing scandal.

Although the past six months have seen a slight improvement in its fortunes, investors were rattled again in the spring when the company paid former chief executive Charles Brady a $9m (£5m) golden handshake on his retirement. The new chief executive, Martin Flanagan, was also paid several million dollars on his way in the door.

Although the City broadly welcomed this week's news that the company has bought a small US private-equity outfit, there is still deep suspicion about the capability of Amvescap's new management, and some concern that the group has not yet shaken off its complacency. Avoid.

CRODA INTERNATIONAL

Croda International, the speciality chemicals group, produces the ingredients used to make soaps, creams and vitamin supplements as well as the ingredients that go into dishwasher tablets and stain removers. It is in the process of completing the purchase of ICI's Uniqema division, which will create a company with sales of £932m and pre-tax profits of £115m. Although it will be heavily geared, its strong cashflows will easily cover this. When Croda shares return from suspension next month, they will be worth buying.

RENISHAW

Renishaw, which makes measurement systems for precision machining, unveiled a 20 per cent rise in full-year profits to £38m this week. The chairman and chief executive, David McMurty, said his firm enjoyed growth in all geographical regions. However, before readers pile into the shares, it is worth noting they already enjoy a top rating of 17 times forward earnings and have a yield of just 2.7 per cent. There is better value elsewhere in the engineering sector. Avoid.

WOLFSON MICRO

Wolfson Microelectronics presents investors with a great buying opportunity. As this week's second-quarter results showed, business is booming, thanks mainly to the public's insatiable appetite for electronic gadgets. Profits doubled. The chief executive, David Milne, says the company is expecting a strong rise in demand during the current quarter. The stock now trades at 22 times forward earnings. For a company of Wolfson's quality and growth prospects, this is not expensive. Buy.

ST JAMES'S PLACE

The upmarket wealth management business St James's Place once again smashed analysts' expectations this week, unveiling top-drawer results. Although the financial services industry has had mixed fortunes over the past few years, SJP has consistently delivered, and there will be more to come. The only downside to SJP is its valuation, which is well ahead of its peers. While there is surely more to come, growth of 50 per cent a year is clearly unsustainable. Time to take profits.

IG GROUP

Five years ago, spread-betting company IG Group had 8,000 clients regularly traded through the firm. Today, this figure stands at more than 25,000. The group is highly cash generative and is now on the hunt for acquisitions. The chief executive believes there is still more growth to be had in the UK, but also plans to expand IG overseas. Although its shares are not cheap, they are worth holding.

INSPACE

Inspace makes its money by running local housing authority maintenance contracts, and current trading is tough. The company says there has been a lag in new social housing contract awards and an underspend on the Government's affordable housing initiative. Although there is potential for more disappointment, there is also room for improvement. For brave investors, the shares are worth buying.

ROLLS-ROYCE

Rolls-Royce beat City forecasts for profits, cashflow and dividends this week. Thanks to improved efficiencies and productivity, Rolls-Royce was able to mitigate the impact of higher raw material costs and a weak US dollar. The second half promises to be just as buoyant as the first. Its order book now stands at £25bn and should swell further. Its shares are worth buying.

BAT

Smoking might be on the wane in Western Europe - thanks to advertising bans, health warnings and government curbs - but it's having little impact on profits at British American Tobacco. Underlying profits increased by 15 per cent in the first half. With BAT now trading at 13 times forecast earning for 2007, it is one of the cheapest stocks in the sector. Hold.

ASTRAZENECA

AstraZeneca has been one of the best performers in the FTSE 100 this year, partly because of persistent speculation that the Anglo-Swedish drugmaker could be swallowed by GlaxoSmithKline or Switzerland's Novartis. Its existing portfolio of blockbuster drugs is certainly very strong and was behind this week's 26 per cent jump in second quarter pre-tax profits. Given the performance of its shares recently, investors would do well to take profits.

The above are extracts from the daily investment column

Little fun to be had with Games Workshop Group

The year 2006 has been an annus horribilis for Games Workshop Group, makers of table-top war games. The company's management will be hoping this week's full-year results mark the nadir for the group. The figures showed a 73 per cent fall in pre-tax profits.

Largely to blame for the slump is what the group has described as the bursting of the Lord of the Rings "bubble". With the passing of hype surrounding the films, customers are no longer buying the games the group had invested in.

Sales to smaller US retailers have also been faltering. Many have been forced to close amid growing competition from giants such as Wal-Mart. Meanwhile, ever-falling prices of computer consoles must also be a long-term concern for the company as it is likely to prompt customers, mainly teenage boys, to shun its highly complicated games in favour of the likes of Lara Croft.

To its credit, Games Workshop managed to reduce its overheads by £2.8m during the year and trading enjoyed an improvement during the spring. But it is not clear whether the company has really turned the corner.

With the company trading at a very demanding valuation of more than 35 times forecast earnings for next year, its shares are best avoided.

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