Happy days continue for investors in the mining sector. The bull run that commodity stocks have enjoyed has enabled Rio Tinto, the integrated miner, to almost quadruple in value over the last four years. Rio's third-quarter production numbers, released on Wednesday, were roughly in line with market forecasts, and the company is operating near full capacity. However, the trouble with operating at full capacity is that any unexpected outage will reduce forecasts. Not so long ago, Rio looked good value, despite the surge in its share price. The same argument is tougher to make now, and although it looks certain to hit full-year forecasts of just over £5.6bn of pre-tax profits, the shares now trade on over 14.6 times forecast 2007 earnings. Not exactly expensive but not being given away either.
In the long term, no portfolio should be without exposure to the mining sector, and Rio remains a high quality business. But investors should know that no one ever went bust taking a profit. Anyone who's made a substantial return on Rio Tinto should consider banking at least a small proportion of it.
It seems like GW Pharmaceuticals has had investors excited about its medical marijuana potential since the days of Methuselah, but shares are languishing at just above its all-time low. GW's flagship product, Savitex, aimed at pain relief for multiple sclerosis sufferers, has had numerous setbacks, but this week, a two-year study published in The Journal of Clinical Therapeutics concluded that Savitex is effective in treating long-term pain. Until now, Savitex had only been proven as an effective pain killer in the short term. Given the fall in the share price and that Savitex still has good commercial potential, investors already in the stock should hold on. But for new investors, there is no rush to get on board.
The decision by the US to ban online gambling lost Sportingbet 75 per cent of its business overnight. The impact of that was writ large in Wednesday's results for the year ending 31 July, which showed a headline pre-tax loss of more than £300m. However, after stripping out the US business, Sportingbet turned in a profit of £7.4m, up by more than three quarters. The shares trade on 12.6 times next year's full-year earnings. The problem is, you never know whether or not legal issues will come back to bite the company.Risky buy.
The knock-on effect of the slowing housing market has been felt across the board, but the DIY and building supplies trade has been feeling the pinch for a long time. The building retail group Travis Perkins has been no exception. However, total group revenue was 11.3 per cent better than in the corresponding period of 2006, and the shares look decent value at just over nine times forecast 2008 earnings based on forecasts from Seymour Pierce, the house broker. This is a solid retail business, but the bigger economic picture remains bearish. Hold.
Cancer treatments are still the holy grail of the biotech industry – but thousands of companies are researching treatments for cancer, and few of them make it to the market. Antisoma has revealed phase II trial results for ASA404, its cancer treatment. The results showed a marginal improvement against competing prostrate treatments. Antisoma is due a $25m up-front payment from Novartis when phase III patient recruitment starts in the first quarter of 2008. That payment is with regard to its efficacy in small-cell lung cancer. Investing in biotechnology is always high risk, but anyone coming this far with Antisoma should stick it out until more data is published. Hold.
If the headlines are to be believed, the housing market is at crisis point and we are all doomed. But nine times out of 10 the Armageddon scenario does not happen, so is it time to take a punt on a house builder? Bellway has an excellent record of delivering growth and its shares, priced at just 7.3 times forecast 2008 earnings, offer good value. Although the housing market is slowing down, the valuation suggests that most of the downside has been priced in. But for potential new investors, there are better opportunities elsewhere.
Any reader who took our advice four months ago and bought into the condom and foot-care products manufacturer SSL International owes us a beer. The shares have rallied impressively, adding almost 20 per cent against a flat wider market. First-half sales are expected to come in at £260m, well ahead of the £236m in the same period of 2006. However, investors must ask themselves if any bidder would pay a significant premium to the current price in order to buy the company. In the current market the answer is probably no, and given its expensive rating, investors should bank their profits.
St Ives, an independent printing group, is placing its faith in a state-of-the-art digital operations as it looks to differentiate itself in a crowded sector. This week, the company reported solid full-year results, with pre-tax profits up from £24.2m in 2006 to £27.6m this year, with a boost in turnover from £382.5m to £425m. The stock trades on a forward multiple of 10.7 times 2008 earnings, and pays a yield of 7.4 per cent, and offers good value to growth and income seekers alike. Buy.
Rather than taking it as a transformational deal, investors seem to have done their best to ignore Mothercare's £85m acquisition of Early Learning Centre, confirmed in April. This week's second-quarter trading statement contained enough good news to take the weak share price as a strong buying opportunity, and chances are that the ELC acquisition will still transform this business. The shares are not cheap, trading at 14 times forecast 2008 earnings. However, this business has growth potential. With Christmas coming up, typically the busiest time of the year for ELC, the risk looks to the upside. Buy.
Anyone lucky enough to have taken a punt on online auction group QXL Ricardo back in January 2005 would now be sitting on a profit of about 2,450 per cent. First-half revenue rose by almost 200 per cent to £30.6m, with trading profit up by 235 per cent to £7.7m. Pre-tax profits of £6.8m were up from just £1.8m in the first half of last year and the numbers were ahead of City forecasts on every level. This is not a stock for the faint of heart, and according to forecasts from Citigroup, the stock trades on over 41 times forecast 2008 earnings. However, that number is expected to fall fast, and analysts expect the company to maintain growth of at least 30 per cent for the next three years. The chance to make a real killing on QXL may have gone, but for high-risk investors there could still be plenty of upside left. A risky buy.
One problem with gas production is that when the pressure in a field falls, it is difficult to carry on pumping. Aim-listed Corac Group has developed technology that artificially increases pressure and therefore the amount of gas recoverable from depleted fields. The technology is not expected to go into commercial use until mid-2008, but the early signs are encouraging. Not one for widows and orphans, but the technology has huge potential. Buy.
Smoking ban leaves Rank – and punters – out in the cold
Rank Group took another battering on Monday, as the shares continued to slide as a result of last week's profit warning, which was, well, rank.
Not only has the impact of the smoking ban been worse than feared at both its bingo clubs and casinos, but the loss of large numbers of jackpot gaming machines, thanks to the Government, has also hurt revenues very badly.
These machines are very popular, and the decision to cut the number allowed in bingo halls and casinos has hit Rank hard. Unsurprisingly, lower-jackpot machines have failed to fill the gap
Rank is addressing the problem, adding new games and introducing outside "smoking" shelters where, it is hoped, punters will be able to play outdoor bingo. But when it's cold, smokers will probably just stay at home and play online.
Prior to Monday's falls, Oriel Securities had Rank on 16.5 times the reduced level of earnings it is forecasting, having seen the 19 per cent fall in September's revenues. That looks very pricey, and while the yield, at 4.8 per cent, is healthy, there are doubts about whether Rank will be able to sustain its dividend given its current circumstances. A cut will hurt the shares even more, so the only option, really, is to sell.