The Week In Review: Gripe all you like, most of us shop there

TESCO

Tesco is the company everybody loves to hate. You can pick your gripe – independent retailers accuse it of putting them out of business and suppliers grumble about their treatment at its hands, while consumers say that it is guilty of eroding the character of the local high street.

But the fact is that Tesco is the place most of us prefer to shop. The headline figures speak for themselves – the chain enjoys a massive 32 per cent of the UK grocery market.

This week, the Tesco juggernaut begins its aggressive assault on the US market with the official opening of its first six stores under the Fresh & Easy brand in California. Analysts believe the format will meet a growing need in the US for fresher foods and smaller, and closer to home shopping trips and are estimating a successful Stateside business to be worth 40p a share.

Tesco is trading at around 19 times forecast earnings for 2007 which, although not cheap, is a discount to its rivals. However, it should maintain its dominance and is worth a premium. Buy.



LOGICACMG

This has been a tough year for LogicaCMG. After spending the past few years dealing with continental problems, trading in the UK has deteriorated triggered by a disastrous implementation of a project for T-Mobile that ultimately cost Dr Martin Read, its long-term chief executive, his job. In spite of the appointment of a high profile replacement, it will take some time before this stock is on the up again. There will be better times for investors to buy. Hold.

Dhir India Investments

Since coming to the markets in July, raising £25m in the process, Dhir India Investments has performed well. The company was set up in order to invest in distressed Indian manufacturing and land assets – taking control of those assets by buying up non-performing loans. Since listing, it has made five investments, with potentially 10 to 15 before becoming fully invested. Although on the face of it this is a high risk investment, the risk that all of these projects will fail is small. But as a play on the Indian economy, it is about as low risk as investors could hope to find. Even if growth slows, Dhir has the people and expertise to provide decent long-term results. Buy.



LIBERTY INTERNATIONAL

Despite posting a bullish set of third-quarter numbers this week, Liberty International, the commercial and retail property giant, remained cautious. Liberty shares have been a solid performer over the past few years, riding on a wave of property investment, cheap credit and liquidity in capital markets. But regardless of the quality of its portfolio it is difficult to see those conditions returning in the near term.

The shares are far from cheap either. Investors should err on the side of caution and bank their profits now.



MICRO FOCUS INTERNATIONAL

Micro Focus produces software that allows companies to update older systems without having to fork out for a complete overhaul of their hardware. Like most technology stocks, Micro Focus is not cheap, trading on more than 21 times forecast 2008 earnings, and although the company looks to be making all the right moves, both financially and within its markets, it remains a volatile stock. Better buying opportunities will arise in this market. Hold.



ARMOUR GROUP

Armour Group has gone through something of a transformation over the last few years. It used to own Turtle Wax, among other household brands, but now sells high-end consumer electronics. Armour's strategy of teaming up with house builders and car retailers to offer its products as extras in major purchases is clearly working. Although a potentially slowing economy and a stagnant housing market is cause for caution, it has made a solid start to the year and its executive product range should offer some defensive qualities. Worth a punt.



FIRST GROUP

Anyone buying into FirstGroup four years ago has made a return of over 200 per cent on their initial investment. Although this week's results were solid, the company made cautious noises about its outlook. With oil rapidly now at around $100 a barrel, the company must hope fuel prices stabilise because its ability to pass costs on to customers is limited by industry pricing regulations. Secondly, it must generate a minimum of its targeted $70m in synergies arising from the $2.8bn acquisition of US group Laidlaw, completed last month.

For new investors there are too many questions still to be answered to warrant getting excited about this stock, but existing shareholders should hold on.



FENNER

Fenner operates two main businesses – conveyor belt textiles, primarily used in heavy industries like mining and oil, and advanced engineering products, such as seals and advanced polymers. Both have been driven by the surge in natural resource investment and the construction of coal-fired energy plants, and as there is little evidence that demand for commodities is likely to drop any time soon the long term future for Fenner looks exciting. However, in the shorter term the weak dollar and concerns over the credit markets are likely to mean that the shares will plateau. Longer term investments who have enjoyed the recent ride in its share price should bank some profits.



TANGENT COMMUNICATIONS

This week's results from Tangent proved just how lucrative online marketing can be when it's done right. So far, the company has managed to develop an impressive list of blue chip clients, including Greene King, Wolseley, KPMG and Halifax. As always, this kind of stock is not for the faint-hearted. But Tangent is making real money and based on forecasts from broker Collins Stewart it trades on under 10 times forecast 2008 earnings not including its cash pile. For high risk investors looking to cash in on the digital advertising revolution, Tangent looks worth backing. Buy.



RENTOKIL INITIAL

The days of Mr 20 Per Cent, Sir Clive Thompson, must seem like a lifetime ago. Since the year 2000, when Rentokil first missed its ambitious growth target, the shares have stagnated, and even if there are signs of life, that kind of return looks a long way off.

Although the prospective 4.5 per cent dividend yield is attractive to income seekers, most of the next few years' worth of growth looks to be priced in – and considering that the company is still carrying almost £1bn worth of debt, there are undoubtedly better growth opportunities to be found elsewhere. While management should be applauded for the progress made so far, the shares are too expensive. Sell.



PUNCH TAVERNS

We have commented several times in the past that the pub industry's bullish forecasts about the impact of the smoking ban could turn out to false. That said, the blue-chip pub group Punch Taverns still managed to post a well-received set of full-year numbers this week. Looking forward, the shares look reasonably valued on under 11 times forecast 2008 earnings. But investors should be wary – working past the smoking ban in the summer is one thing, but the winter will be harder, as has already been proved in Scotland, where the ban has already included one winter. Hold.



PURE WAFER

Pure Wafer, the Swansea-based developer of wafer technology for the semiconductor industry, issued a profit warning this week. The problem lies with its 50 nanometre wafers, of which it was expected to begin deliveries in the first half of next year. That now looks like being delayed. As a result, revenue from the new product is not expected until 2009 at the earliest.

In light of the statement, the sharp fall in its share price was justified, and with little for investors to do other than to wait for more news, the advice at this stage must be to get out. There are plenty of high-risk opportunities available elsewhere with decent newsflow.

a.dewson@independent.co.uk

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