The Week In Review: Stop - before you decide to park Avis shares

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The Independent Online

Renting cars is a tough game, and it has been a tough six months for investors in Avis Europe. The shares have lost 50 per cent since March, impacted by competition concerns, rising costs and an investigation into accounting practices at its Portuguese operations. But has the market been unduly harsh on Avis? Probably not.

First-half numbers are always worse due to seasonal factors; although the company remains confident of hitting full-year underlying profit forecasts of between ¿33m and ¿35m, these are still slightly worse than the 2006 figures.

The shares may look slightly expensive, trading on over 16.5 times forecast 2008 earnings, but given the fact that the company is in the middle of a turnaround programme it is probably a fair price. Avis still has much work to do, but given the dramatic fall in the share price much of the downside looks priced in. Hold.


Bunzl, known as the first commercial producer of cigarette filter papers, sold the last of that paper and packaging business in 2002, and now concentrates on distribution and outsourcing for a wide range of industries. Although the shares are not exactly cheap, trading on approximately 14.1 times forecast 2008 earnings, Bunzl is a low-risk, well-managed company that should find a place in any long-term growth equity portfolio. Buy.


Quarto publishes books and art prints and does co-addition publishing, where it prepares content to be sold to other publishers around the world. First-half numbers were in line with most forecasts this week, and the company also announced the acquisition of US publishing group MBI for $35m (£17.4m). According to Oriel Securities, the stock is trading on less than seven times forecast 2008 earnings while paying a dividend yield of over 4 per cent. Value this good is hard to find in the smaller caps and specialist publishing is outperforming its larger peers. Quarto remains high risk, but looks worth a punt.


Lonmin, the world's third largest miner of platinum group metals, breathed a sigh of relief this week after most of the workers at its primary operation in South Africa reluctantly returned to work after a strike. In total, up to 30,000 platinum ounces of production was lost – hardly a disaster – but the problems that led to the dispute must be addressed. At 14.5 times full-year earnings and yielding 1.77 per cent, the shares are not overpriced, and the dividend was given a good hike at the interim stage. Still, avoid for now.


Like many of its peers in the regional newspaper sector, Johnston Press has had a pretty rough ride over the past 18 months: advertising rates are under severe pressure, and circulation is heading the wrong way. But the company's investment in digital platforms is starting to pay off. The stock is valued at just over 11 times projected earnings, a relatively undemanding rating, but it is probably worth being cautious until meaningful signs of a pick-up in the ad sector emerge. Hold.


In the run-up to the recent market shock, Irish Life & Permanent's shares were under a cloud because of fears about the Irish property market. And new mortgage lending at the bancassurer did indeed fall sharply. But while IL&P is a big presence in the Irish mortgage market, it also has a substantial long-term savings business that did very nicely. The Celtic Tiger still seems more resilient than the sceptics would have us believe – and, trading at about 12 times forward earnings, it it is not expensive. Buy.


The aviation industry has been, well, flying in the last year or so, buoyed by the launch of major new aircraft from industry giants Boeing and Airbus. BBA has been around for a long while but this week's numbers were debut figures reflecting the demerger of Fiberweb back in December. BBA Aviation is now a much more focused group, providing a range of services to private, commercial and military customers. The biggest threat to BBA is the prospect of a severe economic downturn in the US. There is an outside chance of that happening, but if it does, there will be no safe haven anywhere in equity markets. Even if this stock is unlikely to make anyone rich overnight, it looks in solid shape. Buy.


With the price of oil remaining high and demand showing no sign of slowing, great things are expected of the oil services industry nowadays. So, given recent market conditions and a slightly disappointing set of numbers, the hammering Hunting took this week was probably deserved. Even taking into account the tumble, the stock trades at 16 times forecast 2008 earnings – not cheap but not excessively expensive given its strong market position. The shares may have further to fall but for investors with a longer-term horizon, this week's sharp sell-off has created an excellent long-term buying opportunity.

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