The Week in Review: Punch Taverns' shares are cheap
Saturday 26 April 2003
Hitachi Credit UK.
Those "buy now, pay later" deals offered by furniture retailers, jewellers and electrical goods companies are financed by groups such as Hitachi Credit UK. This company, two-thirds owned by the Japanese financing giant Hitachi Credit, reckons that any consumer slowdown might tempt stores to offer more of these sorts of incentives to customers. There is also optimism at last on its business lending division, which was crippled by bad debts in 2001. Hitachi has high debts and almost half its retail financing business comes from a single customer. But with a 7 per cent dividend yield, it is worth owning.
Results from the drinks giant this week dulled some of the pain from a profit warning in February. The group's top tipples, which include Beefeater gin and Courvoisier brandy, are growing nicely. There was also relief that Allied's wine business had escaped the worst of the global grape glut. But with consolidation in the sector off the menu for the time being and earnings forecast to be flat this year, the shares are only a hold.
It is tempting to write "sofa, so good" as a description of DFS Furniture's half-year results this week. It has been able to wring an extra 3 per cent in sales from its stores compared to a year ago, and that confounded investors who are convinced the UK economy is teetering on a slide in consumer spending. The economics don't look good, though, so those buying DFS shares now may find they have further to fall. The group remains strategically sound and its shares are worth holding for the dividend.
Ferraris Group is not at the big sportscar end of the stock market. After messy and disappointing figures from the medical devices company, it looks more like a Lada with the doors hanging off. Ferraris makes medical products used in cardiology and lung complaints, including monitoring equipment used in drug trials. Management is going to take some rehabilitation after a change in its accounting policy. Until it has two or three sets of clean results – no "one off" costs, no restatements of early accounts, no trading disappointments – Ferraris shares are only likely to drift. Sell.
Michael Spencer, the City grandee who runs Icap, is set to pull off his biggest deal since merging Garban and Intercapital to form the company in 1999. Already the world's largest inter-dealer broker, Icap will next week complete its £180m purchase of BrokerTec, a hi-tech brokerage owned by a consortium of investment banks, including Goldman Sachs, Merrill Lynch and CSFB. BrokerTec brings Icap a needed respectable electronic trading platform, but it is being paid for in shares and these could overhang the market. Take profits.
Jason Goddard, the utilities analyst at CSFB, IP's house broker, says there is "very significant value" in IP shares. He has an interesting thesis to back him up. He conducts an imaginary "asset stripping" of the IP's portfolio of power stations and power generation investments, in the same way a corporate raider might, and concludes that, after selling and closing some assets, cash from the remainder provides a very tidy return on investment. IP is an interesting share for contrarians.
A profit warning at Stanley Leisure back on Budget day, which cited a luckless performance at its 37 regional casinos, sparked fears that punters were tightening their belts which, if true, would have also affected Rank Group's Grosvenor casino estate. Analysts have settled on the view that Stanley's problems are specific to the company. While Stanley relies on casinos for 65 per cent of its operating profits, they contribute just 10 per cent at Rank, which also owns Hard Rock Cafes and Deluxe film processing. Both shares have fallen too far. Stanley's shares look worth a flutter, while investors should stick with Rank for its 6 per cent dividend yield.
Originally called CADcentre, Aveva made acquisitions to broaden its product range from its original 3D design software and to enable more recurring "software services" revenue. Its software helps designers see interactions between components in factories, oil rigs and other big engineering projects, so it is less exposed to the economic and technology investment cycle than some rivals. Aveva is an expensive software stock, but is worth holding.
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