The Week In Review: Advertising agency is still flying high

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The Independent Online

M&C Saatchi, the advertising agency that is home to British Airways and Dixons, was popping champagne corks this week and not just because it has signed up Krug as one of its recent account wins.

M&C Saatchi, the advertising agency that is home to British Airways and Dixons, was popping champagne corks this week and not just because it has signed up Krug as one of its recent account wins.

The creative home of the Saatchi brothers published its first full-year results since last July's stock market float and the company was able to advertise a set of decent figures.

One advantage M&C Saatchi has is its size. Although it carries a big name, its operations are small compared with the global titans of the advertising world, such as WPP or Havas. While most famous names in advertising have been swallowed by one of the big agency networks, M&C Saatchi remains independent but with plenty of big name clients. Buy.

MOSS BROS

All three of Moss Bros's high street businesses - Moss, Boss and Gee - are firing on all cylinders. Sales are soaring, the company is getting better terms from its suppliers and has been smartening up its stores. The prospect of a takeover bid is more unlikely by the day, as predators conclude that the current management is doing as well as anyone can. Hold.

COSALT

When David Ross, the co-founder of Carphone Warehouse, joined the board of Cosalt, the Grimsby-based conglomerate which makes caravans and life jackets, market chatter was that he might bring his business acumen to the task of breaking up the group. The speculators may be getting carried away. His father and grandfather were chairmen, so Ross's share purchase is not (just) a hard-headed investment judgement. Investors looking for capital gains need not chase Cosalt shares yet.

PHS GROUP

PHS Group is often described as a "mini-Rentokil". The company rents out and maintains hand driers, paper towel dispensers and air fresheners to the office and public toilets of Britain. Profit margins have contracted. The company is spending more on customer service and training for its employees. Not especially attractive.

CAREFORCE

Careforce has acquired a dozen small firms supplying home helps on behalf of local authorities, and aims to be a consolidator of the sector. Demand will rise inexorably as the population increases. The preference is for care in a person's own home. Local authorities are under pressure to outsource to the private sector. Buy.

ITIS HOLDINGS

Itis Holdings gathers information from transmitters placed in vehicles that use the road network a lot, such as lorries and coaches, and broadcasts traffic jam information to in-car navigation systems. It is moving into the black quicker than expected, because in-car navigation systems are catching the public's imagination, certainly if last Christmas's sales figures are anything to go by. Hold.

WS ATKINS

Life is never going to be entirely smooth for the engineering group WS Atkins, given the nature of its industry. It is often dealing with the public sector and complex contracts, which can go wrong. But Atkins has put past troubles behind it and is now focused on planning, designing and aiding other companies' engineering projects. Buy.

PIPEX COMMUNICATIONS

Pipex Communications is the fifth-largest supplier of broadband internet services but there is more to Pipex than just connecting consumers to the worldwide web. It has a website and data-hosting business, a network operation that supplies telecoms services to business customers, and a licence for wireless broadband services that it will be testing this year. Buy.

HHG

HHG sold its life insurance businesses to focus on its fund management arm, Henderson, and its independent financial adviser division, Towry Law. There is little to commend the stock to new investors. In a quickly consolidating market, the largest or most specialist fund managers are set to succeed - and Henderson is neither. A bid is possible though, so shareholders already on board should stay put.

MORSE

Morse is an IT services business which supplies, installs and integrates computer systems for businesses in the UK, France and Germany. It operates in an environment where the prices of hardware are being driven down, hence a profit warning this week. This sent the shares through our stop-loss so we are selling them from our portfolio of tips for 2005.

SSL INTERNATIONAL

SSL International, the maker of Durex condoms and Scholl sandals, has sold its hospital supplies business to focus on ultra-competitive consumer brands. This is not a growth company. Restructuring plans that will double its operating profit are already factored into the share price - as is a bid for the group. The shares are 30 per cent above the company's own broker's target. Sell.

Profits to be mined for those who show mettle

Vedanta Resources has a rocky relationship with the City. The India-focused mining company came to the stock market in a difficult flotation in 2003 and its shares crashed afterwards. A second equity fundraising had to be scrapped, the company's maiden results were delayed; and there have been boardroom musical chairs.

This won't ever be an appropriate investment for widows and orphans. But we tipped Vedanta back in October and the shares have risen 24 per cent since then.

The development of the Indian economy is, along with the emergence of China, one of the long-term economic stories of the age. The demand for the metals produced by Vedanta - most notably at the moment, zinc - is high and increasing.

Vedanta, for its part, is more than $1bn of the way through a $2.2bn investment programme to develop its Indian assets. Zinc production was a high point in this week's mixed production report for the financial year just ended.

The full financial results for the year will be out on 2 June, and soaring commodities prices guarantee a strong uplift in pre-tax profits. The long-term buy case is this: industrial revolutions in China and India will keep commodities prices high for the foreseeable future; Vedanta's own dramatic increase in production over the next few years guarantees earnings growth; and it has lucrative options to mine other areas in India.

The risks are that growing environmental awareness may slow the development of new projects further.

Because of the rocky relationship with the City, Vedanta shares are not accorded a high valuation. Disappointment is priced in; success is not. Buy.

The above is a selection of recommendations from the daily Investment Column.

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