The Week In Review: Wiping the floor with Reckitt stock

Reckitt Benckiser the cleaning-products company outshone its rivals in the consumer-goods world with another set of sparkling results this week. Doubts that the soaring cost of raw materials in 2005 had hampered the group's progress Vanished after Reckitt announced that it had Finished the year by hitting its 20 per cent operating-margin target one year early.

Reckitt, whose products seek to make our homes shine brighter and whiter, is set for another year of industry outperformance, with the aim of delivering operating margins of 22 per cent by 2008.

Shareholders in the group have cleaned up since it was created just over six years ago by the merger of Reckitt & Coleman with Benckiser of the Netherlands. For the year, the increase was 6 per cent to£4.2bn, which delivered a 16 per cent increase in pre-tax profits, to £876m.

The only headache for investors is that the group's markets in western Europe are growing more slowly than they have done for years. The tough trading backdrop combined with the challenge of integrating the Boots acquisition gives less clarity than usual about the outcome for 2006.

Shares in the group trade at a hefty 17 times 2007 earnings. But that looks well deserved. Keep stocking the bathroom cabinet.

ULTIMATE LEISURE

The billionaire Reuben brothers have in recent months been steadily building up a stake in Ultimate Leisure via contracts for difference. On Tuesday, the duo converted these derivatives into actual shares, and now control 29.9 per cent of the bars and nightclubs group. Ultimate's asset backing means that there is little downside in the shares and, once trading starts to pick up, they should start to motor. Investors would do well to follow the lead of the Reuben brothers and buy.

DIC ENTERTAINMENT

An animated version of Warren Buffett has joined Inspector Gadget and the Care Bears as one of the characters that DIC Entertainment aims to promote. The group plans to create a series called The Secret Millionaires Club in which the legendary investor will teach children The slot will not only boost DIC's financials but will also enhance the group's profile across the Atlantic. At 256.6p, the stock trades at a discount to rivals. Buy.

QUANTICA

Despite delivering a 30 per cent rise in annual profits, Quantica remains one of the cheapest stocks in the recruitment sector. Adjusted pre-tax profits rose to £3.6m, compared with expectations of £3.3m and up from the £2.4m delivered this time last year. However, its shares trade at just 9.4 times forecast earnings for 2006. Buy.

SCS UPHOLSTERY

Despite the much-publicised slowdown on the high street, sofa retailer ScS Upholstery has gone from strength to strength. Analysts expect ScS to meet City profit targets this year - pre-tax profits should hit £18m, up from £15.6m in 2005 - and the stock trades at 11 times forward earnings, a premium of 20 per cent to Land of Leather, its only quoted rival. Even so, hold on to the company, given recent speculation that a special dividend could be on the cards.

AUTONOMY

After the £285m purchaseof US rival Verity in November, the Autonomy group has become the world's biggest provider of software allowing companies and governments to search the mounds of information that they receive on a daily basis. Though the shares trade at 32 times forward earnings, this is not expensive given the growth potential of the market and the company's operational gearing. Buy.

GALLAHER

Takeover speculation again gripped the tobacco sector this week and the "hot money" is betting on a bid for Gallaher from Japan Tobacco (JT). On its own, Gallaher is not an enticing proposition. In the UK, from where the group gets 50 per cent of profits, it is up against falling sales as smokers shun its premium brands in favour of cheaper alternatives. And, in the coming years, the UK is set to become even more challenging as government smoking bans come into effect. Still, given the present mania for M&A deals, an offer - probably from JT - might not be far away. Hold.

CHRYSALIS

Although Chrysalis's trading was positive for September and October, it showed a 6 per cent decline for the remaining three months of the year. However, as the company goes forward it will find itself up against increasingly favourable comparatives and should soon start to register growth. Hold.

TOREX RETAIL

Torex sells a wide variety of technology to retailers ranging from store tills to back-office systems. Despite concerns about acquisitions and company strategy, investors should give Torex the benefit of any doubt, especially given the lowly rating of its shares. They trade at just 13 times forecast earnings for 2006, which is far too conservative for a company tipped to deliver a near 80 per cent rise in profits for that year. Buy.

The above are taken from recommendations in the daily Investment Column

Yell buoyant on US earnings despite UK inquiry doubts

Investors seem unconcerned by the Competition Commission's inquiry into Yell's dominance of the UK printed directories market. Although its shares were sold off sharply when the referral was announced in April, they have since recovered these losses and gained nearly 20 per cent.

Third-quarter results highlighted just how well the company is doing in the US. Last year's £800m purchase of the directories business Trans-Western not only diversified it away from the UK, but also gave the company exposure to a fast-growing market.

In the first three quarters of its financial year, Yell registered an impressive 51 per cent jump in sales. It is now the biggest independent directories player across the Atlantic and is competing successfully against the services offered by telecom giants such as AT&T and Verizon.

The growth Yell is enjoying in the US is unlikely to dry up soon. This potential makes the rating of Yell stock, 13 times forward earnings, look conservative. But given the uncertainty generated by the Competition Commission investigation, it is appropriate for now. Hold.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

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