The Week In Review: Time to hire and fire those shares

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The Independent Online

Harsh. The Independent's portfolio of share tips for 2005 has to let go of Harvey Nash, the IT recruitment specialist.

Harsh. The Independent's portfolio of share tips for 2005 has to let go of Harvey Nash, the IT recruitment specialist. We introduced a "stop-loss" strategy to make it more like the way our readers ought to be investing. This week, Harvey Nash fell more than 20 per cent below its peak for the year. We tipped the shares at 90.5p. Now they are 75p, a loss of 17.1 per cent.

The steep fall has not come as a result of bad news from the company. We last heard from Harvey Nash in February, when it said full-year revenues were up 25 per cent and profits in line with forecasts. So we need a new member for the portfolio and we are tipping another potentially volatile share.

Cornwell Management Consultants floated last November and is already up by a quarter. It is independent of any IT hardware or software company and most of its work is for the public sector, with 34 per cent of fees from central government. At the presentation of its maiden results last week, the company talked of a strong increase in invitations to tender for new business, and its growing size makes it eligible for more government work.

Cornwell spent money last year not just on its flotation but on hiring new consultants. A hiatus around the general election notwithstanding, more government work is assured, as it acts to introduce efficiencies across the civil service.

This is a high-quality, conservatively managed company with much scope for growth.

OTTAKAR'S

This company has belatedly realised that running 131 book shops across the UK is not easy. The great challenge for Ottakar's is working out how to carry on growing in a slowing retail environment, while controlling its costs. This is all about installing "big company" systems, according to its new finance chief. Wait.

TATE & LYLE

Tate & Lyle is having great success with sucralose, a new "no calorie" artificial sweetener. Sales are booming and new factory capacity is opening next year - just in time, too, as there is soon to be a big upheaval in the European sugar market. Tate & Lyle is the UK's largest beneficiary under Europe's Common Agricultural Policy but many of these subsidies must end. Sell.

ROBERT WISEMAN DAIRIES

Stomachs must be churning at Robert Wiseman Dairies. It has another six-week wait before it finds out whether it is to be dropped as one of William Morrison's milk suppliers.

The company says it is optimistic, but second-guessing Sir Ken Morrison is a mug's game. Wiseman is already having to sacrifice profit margin to win new business (it makes 2p per litre now, compared with 2.5p a year ago). The share price suggests that the market is taking the Morrisons' contract for granted. Too risky.

WOLVERHAMPTON & DUDLEY BREWERIES

The Midlands-based pub company hit the acquisition trail last year and now has 2,135 venues and a growing presence in the North-west and the South-east. Traditional brands such as Marston's Pedigree, Old Empire and Banks's Bitter have won supply deals beyond the W&D estate. The outlook for consumer spending may be weakening, and declining a blow-out meal at the local pub seems an obvious means of belt-tightening, but W&D shares are still not over-priced. Hold.

KINGSTON COMMUNICATIONS

As the municipal telecoms company of Hull, this is still providing a bedrock of business but, nationwide, competition is as tough as ever for the business customers it has chosen to focus most of its services on. Overall financial progress is slow despite the uptake of broadband, and there must be significant evidence of market share gains in the UK before Kingston can be an attractive bet for the private investor.

MAIDEN

You would have thought that the prospect of Michael Howard and Tony Blair battling it out through increasingly shrill billboard adverts would excite Maiden Group. However, the outdoor advertising company was forced to deliver a mild profits warning this week: consumer advertisers do not like trying to compete with political messages during the feverish atmosphere of a political campaign. The election really ought to be just a timing issue for the company but its shares are too expensive to be tempting.

Tipping makes Pennon a hot tip

Water company shares are meant to be low on excitement, high on dividends. But the sector, and Pennon in particular, was pretty racy last year.

In common with most of its peers, Pennon was given permission by the regulator to raise water prices at its core South West Water business over the next five years. And unlike its peers, it received and rejected a bid approach which concentrated investors' minds on the value of its other business, the landfill company Viridor.

That combination of positives won't be repeated, but there is still a strong case for holding Pennon shares.

South West Water has a decent record in wringing out cost savings, vital if it is to boost its earnings beyond those assumed by the regulator.

The sex, such as it is, continues to come from Viridor. The Government is discouraging landfill in favour of more environmentally friendly waste-management strategies, but the balance of measures is not yet unfavourable to Viridor.

Landfill taxes are being pushed higher, but there is also a shortage of new sites, allowing the company to raise prices for tipping. Meanwhile, it is enjoying tax breaks for generating electricity from the gas produced at landfill sites.

The shares are too high for new investors, but those in for the long-term should hold and harvest the dividend.

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