The Week In Review: EMI pulls the plug, but there may yet be an encore

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The Independent Online

EMI and Warner Music had to abandon their merger plans last month after a European court ruling annulled the 2004 regulatory clearance of the Sony/BMG music merger. The court move cast doubt on whether regulators would allow more consolidation in the music industry.

Nevertheless, the effect on EMI's stock market valuation looks excessive. Shares in the music group behind Robbie Williams and Coldplay slumped from 315p to close to 250p yesterday. However, EMI shares are unlikely to remain so cheap for very long.

The auction of Bertelsmann Music Publishing is heading towards its final stages and should be completed in the not too distant future. There is also a good chance that Europe will re-approve the Sony/BMG deal in the next six to 12 months. That would almost certainly lead to a resumption of merger talks. Buy.

Subsea Resources

Salvage company SubSea Resources finally has some good news for its investors. The AIM-listed group has recovered about 12 tons of copper from its Celia project. The broker Ambrian Securities estimates the value of the cargo is around £17m and the group has four more projects scheduled, which Ambrian estimates could be worth £93m. Buy.


ABN Amro Capital sold its remaining 17 per cent stake in the camera retailer Jessops this week. The group has another seven weeks to go before the end of its financial year, but all its key trading periods are now complete and to budget. The shares trade at a sizeable discount to peers, at 11 times' forward earnings compared with 15 times' for the wider sector. Buy.

Friends Provident

Friends Provident has issued a mixed bag of interim results. Although its 9 per cent fall in underlying profits was not as bad as it might sound (mainly due to a series of one-off boosts last year), there are increasing concerns about the group's cash flow, as well as worries about the persistency of some of its customers. Hold.

Nwf Group

Three years ago, this column highlighted NWF Group shares as a bargain at 370p. We were right to do so. The AIM-listed mini-conglomerate this week posted another set of strong annual results and its stock closed at 875p. Formed as a farmers' co-operative, NWF has diversified and now distributes petrol to station forecourts up and down the country, and non-perishable goods to supermarkets. Take profits.

Fireone Group

The fortunes of FireOne, the online payment processing firm, are closely bound up with the internet gaming industry, but the company is steaming ahead; it posted a 98 per cent rise in half-year profits this week and was upbeat about the rest of the year. The dividend came in ahead of expectations and there will be another return of cash to shareholders. Buy.

Management Consulting Group

MCG's interim results showed pre-tax profits up to £7.3m from £4.7m. Analysts think the purchase of French group Ineum will boost the group's profit by 9 per cent in 2007, leaving the shares at just 10 times' earnings for that year and making them worth a punt.

Morgan Sindall

Morgan Sindall, the UK's largest provider of affordable housing, issued yet another sizzling set of results this week, forcing analysts to upgrade forecasts again. As well as reporting a 17 per cent increase in first half pre-tax profits, on the back of a 9 per cent rise in revenue, the group boasted a record £3.4bn of pipeline business, ensuring a prosperous and profitable second half. Buy.

International Power

International Power goes from strength to strength. This week, the power generator served up a forecast busting set of first half figures thanks to sky-high electricity prices and talked of more growth in the months ahead. However, as the group is very exposed to any drop in the price of electricity prices in the US and UK, the shares are just a hold.


Investors in Spirent have had a rocky few months. First came June's profit warning which hit the share price hard. Then, earlier this week, it emerged that activist shareholder Sherborne Investors has built a near 10 per cent stake in the telecoms testing equipment developer, piling further pressure on its management team. Sherborne has almost certainly bought into Spirent with one eye on the company's £150m cash pile as well as the prospects for a recovery. But although the group trades at a discount to its US peers Agilent and Ixia, investors would do well to wait for more evidence of an up turn before buying.

Qxl Ricardo

QXL Ricardo shares returned from suspension on Thursday as the online auctioneer heralded the end of a long running legal dispute with the management of its key Polish business. Stripping out the effect of the battle, QXL Ricardo would have been a company that made a profit of £9.3m last year as opposed to the £2m it reported. Running online auctions is a fast growing business. Hold.

Kitchen equipment supplier is growing fat on fast food

The three-month takeover saga at Enodis has come to an end, with a battle between Middleby Corporation and its rival Manitowoc ending with neither firm winning. The result leaves the maker of kitchen equipment for fast-food restaurants in the same state as at the start of the drama - an independent entity with solid growth prospects.

So where now for Enodis? Well, the company is in good shape as a stand-alone business and should enjoy solid growth in the coming years. During the bid saga, it issued an impressive set of interim results (which boasted a 200 per cent jump in profits to £24m). Then, earlier this week, came a trading statement showing the group enjoyed 12 per cent revenue growth during the 13 weeks to 1 July.

With pressure on fast-food joints such as McDonald's, Subway and Burger King (all are Enodis clients) to provide healthier and more diverse menus, Enodis has been cashing in by supplying new equipment.

Shares in Enodis stand at a hefty premium to those of its peers, reflecting the belief in the City that a new bid for the company will emerge in the next 12 months. Stock is worth holding on to.

These recommendations are taken from the daily Investment Column

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