The Week In Review: Desperate dogs will eat anything
Saturday 19 January 2008
The stock market is starting to behave like an ill-treated dog. Ignore it, then throw it a bone and it will lick you all over – as in its enthusiastic reaction to a by no means exuberant trading statement from Character Group, the toys, gifts and games group.
The shares have been in the doghouse since the company had to withdraw a bead kit coated in a chemical that could act as a sedative. Although Character only distributed the product, the shares were caned.
But suddenly, summer has arrived. Character said that while the year's first half will be tough, it expects "substantial revenue growth" in the second. The finances are in good shape, with scope for buy-backs.
The company says retailers like some of the new products – which will be seen at this month's London Toy Fair – especially a Dr Who range. But with budgets tight, some children may not get what they want.
The firm's broker said it was "back on track", and the shares jumped 18p before settling for a 9p rise. On forecasts of £8m profits the shares sell on six times earnings – not expensive, but a bit early to be celebrating Christmas. Hold.
The leading credit checking agency has been in freefall since the credit crunch hit its major banking customers last summer. There appears little early prospect of a recovery in the share price, which took another knock this week.
As banks cut back on loans, the need for firms such as Experian to run credit checks has slowed.
The shares have fallen 40 per cent since last July, and it is probably still too early to buy for the bounce. Avoid.
ClinPhone, which provides computerised progress on clinical drugs trials, was sedated when problems led to cancelled orders last year. Shares crashed. Having overhauled systems and costs it is winning orders. The firm said third quarter revenue was up 18 per cent and results would be ahead of expectations. Brokers expect £1.2m. Orders remain strong, although shares need longer in the recovery ward. Hold.
Homebuyers are in their bunkers. Grim news for the UK's largest housebuilder, created out of last year's merger of Taylor Woodrow and George Wimpey.
It limped to the finishing line in 2007, making profits in line with expectations, according to a trading update this week, but it was a struggle. It is what happens next that matters. The company admits it would probably need two cuts in interest rates to trigger an early and meaningful recovery. Hold for now.
After wiping 37 per cent off shares over the past year the market has granted the company a reprieve. The price edged up this week over talk that Northern is becoming a recovery play.
It still looks early for such assumptions, but the company said it is on course for profits of around £47m. Christmas sales rose 3.5 per cent. However, this was due to price increases from the soaring cost of ingredients. Supermarkets will resist such price rises. Avoid.
Travelzest is a holiday tiddler with dreams of becoming a big fish. So far, its ambitions have not been recognised on AIM, with the shares well below their 126p issue price of 2005.
But Travelzest has assembled an intriguing holiday portfolio. It is a niche operator insulated from sharp dips at the volume end of the trade. The shares look cheap at 8.7 times expected earnings. Hold.
Fortunately for Balfour, the demise of London Underground contractor Metronet, in which it had a 20 per cent stake, came when signals were set at green for its other operations. A statement this week said 2007 results would be at the top end of expectations.
Brokers expect profits of £195m for 2007, rising to £214m this year, putting the shares on around 11.5 times earnings. This represents an attractive buying opportunity for a group with huge UK and international exposure.
Rising energy prices are bringing misery. But oil companies are delivering buoyant results. Shares in Premier Oil, the exploration and development group, have risen 14 per cent in the past six months, happily tracking the rising price of oil and gas. Premier delivered a solid trading update this week which underpins an optimistic outlook. Buy.
Goals Soccer Centres
The five-a-side organiser is over the moon. Last year's profits followed forecasts and it believes the current year should prove another winner, with a further six centres due to open.
Goals, which floated on AIM in late 2004 at 62p, has exploited demand for organised five-a-side. Profits are set to rise to £9.5m in the current year while the shares trade on 20 times earnings. High enough.
Shares of housebuilders have been decimated in recent months. But perhaps a thaw is underway. A promising trading statement from Barratt sent the shares rallying this week. The firm traded satisfactorily in the six months to December with sale prices holding up. The shares are cheap but buyers should wait until the spring when clearer evidence emerges of housing sales. Hold.
Proposals by Portland Gas to store natural gas on the Dorset coast and then pipe it to the local National Grid have proved controversial. The group, which was spun out of Egdon Resources this week, must now obtain a series of planning approvals, but refusals will hit the share price. However, that is the risk investors must take. Highly speculative.
Car dealer Inchcape is attacking emerging markets such as Russia, where sales are growing at between 30 and 40 per cent a year. This contrasts with the UK where sales grew at 2.5 per cent last year. Brokers soon expect the UK to contribute less than a quarter of group profits. The new international flavour to Inchcape has yet to be reflected in the shares. Now is the time to buy.
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