The conventional wisdom on profit warnings is to sell on the first and buy on the third. Debenhams has delivered three profit warnings in the last 10 months, so is now the time for brave investors to dip their toes in the water?
The statement accompanying this week's full-year results was more positive than anything the company has said in a long time. Full-year like-for-like sales may have fallen by 5 per cent, but that was no worse than expected. Meanwhile, pre-tax profits rose by 13 per cent to £127.5m, while total group turnover rose by 5.1 per cent to £2.31bn.
Like-for-like sales in the first seven weeks of the current year are encouraging; up 2.1 per cent and the gross margin is heading in the right direction. The high street remains as tough a market as it has been at any time in the last decade, and given that the fallout from the summer's credit crisis is yet to fully play out, a recession cannot be counted out of the reckoning.
This is not a safe investment, but for higher-risk investors, now could be the time to take a punt.
Autonomy has defied the critics and given shareholders excellent returns – the best part of 1,000 per cent since the stock hit its nadir at the bottom of the markets in March 2003. But with the shares trading on around 50 times current-year forecasts, it was not a surprise to see some profit-taking on the back of this week's third-quarter numbers. Not that the numbers were poor. A 57 per cent jump in profits to $24.9m, up from $15.9m in the same period of last year and a similar jump in revenues to $89.5m was an excellent return. However, the shares are priced to perfection on more than 30 times forecast 2008 earnings, and any slip-up could see the shares come back down to earth with a bang. Hold.
In January, Aim-listed Solana Resources looked dead in the water. A succession of questionable management decisions plus less than stellar newsflow from its oil and gas exploration activities left the shares languishing at under 40p. The end result has been a major re-rating of the shares on top of a sea-change in the quality of its newsflow. Giving the company any accurate valuation is hard given the lack of numbers to go on and investors should also be aware of the political risk involved in doing business in Colombia. But there could be more to play for. Worth a punt.
Usually, Barclays' shares would have bounced in the last few weeks after it lost out to Royal Bank of Scotland in the battle to buy ABN Amro. Instead, the bank's stock has fallen 12 per cent since 5 October, the day before it conceded defeat. Barclays is not the only bank whose shares have suffered in the credit crunch. But Barclays is of particular concern because the success of its Barclays Capital investment bank has been closely identified with the booming credit markets that seized up in August. Many expected acquisition speculation to help drive the share price if Barclays lost on ABN. Bank of America has had its eye on Barclays for years, but Ken Lewis, BoA's boss, said last week he could not stand any more "fun" in investment banking, and it is now more likely that Barclays will attempt another acquisition once it has licked its wounds. However, with the stock at a near two-year low, there could be upside for existing shareholders. Hold.
Prostraken is typical of a bio-tech company – a bag of potentially exciting products but lacking the muscle to bring them to the market. However, that should change thanks to this week's breakthrough deal signed with the US pharmaceutical group NovaQuest. The deal is an excellent endorsement of Prostraken's major product – Sancuso, a drug which prevents nausea and vomiting in chemotherapy patients, and assuming FDA approval is given, the drug has substantial market potential. Picking a biotechnology stock is not for inexperienced investors, but for higher-risk investors this looks like one to tuck away.
Plus Markets Group
The collapse of potential bid talks last week didn't send Plus Markets' shares tumbling, but given that the talks were only a fortnight old, it is not surprising that some investors will be left wondering what its suitors saw that they didn't like, and many may head to the exit. But to do so now could be folly regardless of what its suitor, Turquoise, saw. Plus Markets, an alternative stock market that was born out of the old Ofex trading system, is about to embark on a major expansion programme. November will see Plus launch its new trading platform in conjunction with OMX, the Swedish exchange group. The platform will allow Plus to increase the number of stocks it trades from just over 1,200 to the best part of 7,500. Investors should be concerned about the failed bid talks, but Plus is in a strong position and is worth hanging on to.
Some of the shine appears to be wearing off the mining sector and this week's production numbers from Kazakhmys did nothing to change that perception. The problem is that for an industry operating at full capacity, to take advantage of demand and high metal ore prices, capital equipment and manpower are harder to come by, and chances are, this will not be the last disappointing production update. We continue to believe that the long-term outlook for the mining industry will remains bullish, and any major sell-off will create a buying opportunity. On 11.9 times forecast 2008 earnings, the shares are far from expensive. But, with more production jitters likely, the sensible advice for anyone sitting on decent gains has to be to bank some profits.
Davis Service Group
Basically, DSG does laundry, although it prefers to use the term " textile maintenance". The company is forecast to make over £91m of pre-tax profit in the current year. This week's trading statement was not heart-stopping but the company remains confident with current forecasts and expects to report double-digit revenue and operating profit growth in the third quarter. For anyone serious about building a portfolio for long-term growth, Davis Service Group ticks all the right boxes. On 13.3 times forecast 2008 earnings with a dividend yield of 3.5 per cent and a strong balance sheet, the stock looks fairly priced. Buy.
The problem with exploring deep waters for oil and gas projects is the potential to sink without trace. Investors in Equator Exploration know all about this, having already lost almost 95 per cent of their investment in the past two years by the time trading resumed this week. The group is trying to implement a turn-around strategy by early next year. It is looking to draw a line under recent difficulties and secure the value of its exploration portfolio through farm-out and sales, already signing a deal with BG. Some investors may wish to hang on in the hope that some sort of favourable exit can be engineered. But, for everyone else, this is a sell.
Buying any share is a calculated gamble, but since the US ban, buying shares in an online gambling group has become, well, just a gamble. But PartyGaming is a business that makes real money and is growing fast. Priced at just over 14 times forecast 2008 earnings according to house-broker Dresdner Kleinwort, is a reasonably priced growth business. Although gambling is never for widows and orphans, for serious punters there could still be plenty of winnings left on the table here. Buy.
Blacks Leisure has abandoned plans for a sale of its surfwear chain Freespirit. The news came as the leisure retailer posted like-for-like sale growth of 3 per cent over the first half. Though the summer proved a wash-out for retailers, outdoor specialist Blacks was one of the few winners with wet weather gear flying off the shelves. Yet uncertainty remains over a replacement for chief executive Russell Hardy who quit in June, following a series of earnings alerts. Investors should sit tight for further developments.
Business lending company Davenham rejected a 325p cash offer on Thursday – a premium of more than 30 per cent to Wednesday's closing price, but well below where the shares were trading before the credit crunch bit. Did it do the right thing? In the longer term, the answer has to be yes. September's full-year numbers were very solid, and looking forward, the shares trade on just seven times forecast 2008 earnings, even taking into account this week's 21.5 per cent jump. The bid was opportunistic and does not do the business justice. Buy.Reuse content