The Week In Review: Cyber beauty still working her magic for SCI
Saturday 22 July 2006
Lara Croft is once again working her magic for SCIEntertainment. The computer game publisher said this week that sales of Tomb Raider Legend, its latest release featuring the cyber beauty, had hit a record 2.9 million since its launch.
With the acquisition of its rival Eidos now integrated, there looks to be little holding SCI back. The positive trend for Lara Croft should continue for some time as Tomb Raider Legend is launched on the Nintendo DS, Gameboy Advance and Gamecube consoles later this year.
Over the past six weeks, the shares have fallen nearly 15 per cent and now trade a just 14 times forward earnings. That is a 45 per cent discount to Ubisoft, its closest peer, and unjustified. Buy.
A slew of new products launches is behind booming sales at TT Electronics. At 182.25p, the group's shares trade at just 14 times forward earnings. Although TT is quite vulnerable to a slowdown in the global economy, the potential of its new products outweighs this risk. A dividend yield of 5.5 per cent only adds to its attractiveness. Buy.
Zergo has built a software platform which facilitates the distribution of mobile phone data irrespective of handset maker or network provider. This week, it unveiled the purchase of Vics, a spin-off from Umist university, in Manchester, which will allow it to distribute video clips to mobile phones along with traditional data. The stock is trading at 32 times forward earnings and despite the strong growth its shares are too expensive. Hold.
Ashtead bought US rival NationsRent for $1bn (£540m) this week. The deal creates the third-biggest tool hire company in the US with a market share of about 5 per cent. Although the deal significantly adds to Ashtead's debt, investors need not be concerned. Its shares, which trade at 11 times forward earnings, are worth holding on to.
JD Wetherspoon confounded critics this week, issuing a bullish trading statement. Like-for-like sales over the past 12 weeks were up 5.1 per cent, thanks in part to the record-breaking UK temperatures. At current levels, trading at more than 21 times forward earnings, its shares are not cheap. Nevertheless, supporting the stock is the company's impressive cashflows. Hold.
TATE & LYLE
Tate & Lyle said its first-quarter results were well ahead of last year's, mainly thanks to the performance of its Food & Industrial Ingredients Americas business and from sugar trading. The company's long-term growth story is good too, with brokers forecasting the business will deliver comfortable profit growth in every one of the next seven years. Given such potential, the stock should be bought.
Four years ago Burren Energy was producing 4,900 barrels of oil a day. This week, the group said this figure now stands at 34,000 barrels. Strong performance has put Burren in a great position to continue developing new business opportunities while proceeding with its drilling programme. There may even be scope for cash to be returned to shareholders. Its shares are well below their January peak of 1,100p. Buy.
Is there a recovery under way at Thorntons? This week's update from the chocolate retailer showed some signs of an improvement. Second half sales fell just 1.8 per cent compared with a decline of 4.8 per cent in the first half. But much now depends on the strategic review being prepared by its new chairman. Should this fail, however, there will be no shortage of bid interest. Hold.
Capita shares were propelled to an all-time this week as the business process outsourcing company posted record interim results. There was also news that the group had secured £806m worth of new business since the start of 2006. In the same period last year it only won £240m. The UK's outsourcing market is worth £4.4bn a year, but analysts estimate it could end up 20 times this figure. Even if they are half right, Capita should continue to enjoy stellar growth for a long-time to come. Its shares are worth holding.
Dairy Crest conceded to investors this week that trading conditions are tough. Rightly, the group believes strong brands are its key to success. It already owns Cathedral City, Utterly Butterly and Country Life and is now trying to brand its milk. This kind of value added portfolio should drive earnings growth for some time to come. The share are a hold.
Death and taxes are the only sure things in this life. So it's no surprise to see Dignity, Britain's only listed funeral services company, doing well. The group is about to return some £80m to shareholders. Its shares have more than doubled since their April 2004 float and have further to go. This column tipped the shares two years ago at 230p. Now, at 519.5p, they are valued at 16 times 2007 forecast earnings and are still worth buying.
Time to take profits out of London Stock Exchange
A note from Credit Suisse to its clients this week, urged them to reduce their exposure to the London Stock Exchange. The Swiss broker made some very good arguments for selling LSE shares at current levels.
First, it pointed out that the bourse is up against pretty tough comparatives. The exchange's order book volumes enjoyed a 25 per cent rise last year between June and July to £103bn of valued traded. It will struggle to match such a figure this time around.
Second, investors are now fully acquainted with the LSE's growth strategy and its plans to return money to shareholders, and are likely to start asking what more it has to offer soon.
Finally, Credit Suisse highlights the hefty bid premium which is already factored into the group's share price.
Given the focus of the New York Stock Exchange on its merger with Euronext, this leaves Nasdaq as the only potential bidder in town for the LSE, and makes the valuation of the exchange's shares now look undeserved.
At current levels, which see the stock trading at 23 times forward earnings, readers would do well to take their profits at the very least.
The above recommendations are taken from the daily Investment Column.
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