The Week In Review: Electoral bounce set to boost Taylor Nelson Sofres

Edited by David Prosser
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The Independent Online

Although shares in the market research group Taylor Nelson Sofres are up by about 20 per cent over the past three years, they have lagged behind their peers.

This week's interim trading statement hinted that a turnaround is taking its time. The company expects to report organic revenue growth of 5 per cent, fractionally ahead of forecasts but will end up only marginally better because of the weak US dollar.

Consumer and political polling is a cyclical business – in tough times it is usually the first cost-cutting casualty. But the outlook for the US is more favourable, and with interesting elections there and in the UK over the next few years, now may not be the time to sell.

The company is busy buying back its own stock and it should complete £68m of buybacks in the full year. Given its recent problems, there is little reason to believe that the shares are likely to start outperforming any time soon. On 16.5 times forecast 2008 earnings, the shares are not cheap either. But if you've hung on this long it might be worth seeing how the rest of the year pans out. Hold.

ABSOLUTE CAPITAL MANAGEMENT

Absolute Capital Management, the hedge fund manager, has seen its share price rise almost 300 per cent since listing in March last year. The company now has more than $3.1bn of assets under management, more than double the amount it managed six months ago. In spite of its strong recent rally, investors have largely overlooked ACM in favour of bigger names. But the shares trade on a significant discount to their peers. Buy.

SPICE HOLDINGS

Spice Holdings is a support services business with wide-ranging operations in commercial, utilities and public services. Despite 12 acquisitions since coming to AIM in August 2004, most of the growth is organic and its markets remain attractively fragmented. With the shares trading on around 18 times forecast 2009 earnings, there is a lot of good news priced in. But Spice has low debt and excellent cash generation. There is much left to play for. Buy.

ANITE GROUP

Technology company Anite has worked hard to overcome a set of legacy issues over the past few years, and has enacted a transformation of its business to focus on high-margin telecoms testing services. Anite trades on a valuation of less than 13 times next year's projected earnings, making it one of the most undervalued stocks in the sector. Yet with no sign of an imminent break-up of the company and the telecoms testing unit yet to show its full potential, it is likely that the stock will continue to trade at a discount. Hold.

ASOS

Online fashion website As Seen On Screen (ASOS) attracts two million visitors a month. The group posted a 144 per cent jump in profits this week. Compared to its peers N Brown and Next, ASOS's margins are low. With international development planned and consumers warming to online shopping, the stock is a buy.

BUSINESS POST

While Royal Mail remains locked in dispute with its workers, rivals continue to gnaw at its roots. An upbeat trading review this week revealed turnover up by 13 per cent in the first quarter, and the group continues to win sizeable new contracts. In time, the growth in electronic communications may put the brakes on, but not yet. Buy.

TULLOW OIL

Tullow Oil is blowing cold on the North Sea, cutting back on drilling to boost exploration in Ghana and Uganda. The net result is that it will miss production targets for 2007, it said, but when you have just made your biggest discovery in Ghana, who cares? The shares have further to go.

3I

The private equity group is in good health. This week, it revealed that realisations from its investments in the first quarter were well ahead of expectations. Whether it can continue this is open to question. Banks are beginning to get cold feet about lending to private equity and 3i's shares are not cheap either. Hold for now.

EMAP INVEST

The era of the lad's mag appears to be over. Emap, the publisher of titles such as FHM and Zoo, warned this week that young men are increasingly turning to internet sites. With impending asset disposals and a replacement for its chief executive expected in the short term, Emap shares could bounce but questions remain over the structure of the company. Hold.

EXPERIAN

Analysts got the jitters about credit reference Experian this week. Organic growth of 7 per cent is hardly earth shattering and the UK growth of 6 per cent shows how difficult the market has become. However, this is a well-run company with potential The shares are not cheap but if the company shows a pick-up in the second half – as promised – then the shares should do well. Hold.

ANTISOMA

Shares in Antisoma tumbled this week after the company said its experimental cancer drug had failed in a mid-stage clinical trial for ovarian cancer. The failure of the drug in one of three major trials is no surprise. Treatments which work well against one kind of cancer often have no affect against another. We believe markets overreacted. Hold for now.

To build the foundations of a solid investment, bet Barratt

For an industry that sells a product where demand massively outstrips supply, housebuilders trade on remarkably cheap valuations. Barratt Developments is no exception – the stock trades on a rating of just over seven times forward estimates of earnings.

Plainly, the risk for all housebuilders is that interest-rate rises – and there may yet be more hikes, despite the five increases we've had since last August – choke off the property market. In this week's trading update, Barratt warned "it would be prudent to assume [that] the housing market will tighten".

Tightening is not the same thing as a slowdown, however, let alone a crash. And there's no getting away from the numbers. Last year, the private sector built 160,000 new homes. Economists believe 223,000 were needed.

In such a marketplace, a housebuilder that pays close attention to cost and has a decent number of plots on which to erect new properties, is well placed. And Barratt is one such company.

Another interest-rate rise would represent a setback for Barratt, but there's a decent yield – around 4 per cent – to compensate for that risk. A long-term building block for your portfolio.

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