The Week In Review: Woolies waits to see what Santa brings


Woolworth's

Tough times continue for one of the staples of the UK high street. Perhaps the only people smiling at Woolworths' woes are Apax Partners, which tried to buy the struggling chain early in 2005 at more than 50p per share. This week's trading statement was hardly the stuff of dreams, but at least the company now thinks there is a chance it could make a profit this year.

Anecdotal evidence would suggest that footfall is strengthening and, with Christmas on the horizon, the fourth quarter ought to reverse declining retail sales. The dividend is very attractive at 8.8 per cent, but it has no cover and should the company fail to move into profitability, it ought to be under threat. At the same time, management, under the leadership of the retail guru Trevor Bish-Jones, is focusing on cost-cutting and profitability and should be given more time to deliver.

However, with plenty of options in the mid-market and the chance that Woolworths could still fluff its lines, there seems to be little point in recommending a buy on the stock. The advice for investors in the stock for the long haul is to hold on and see what Father Christmas brings.

Taylor Wimpey

Since we last covered the housebuilder Taylor Wimpey, the housing market in the UK has pretty much ground to a halt. But if investors think things are bad over here, they ought to take a look at the US, where Taylor also has a presence. Nevertheless, it's important not to get too carried away with the bad news. This is still a company that's forecast to make more than £600m of pre-tax profits in 2008, and the long-term demographics and housing shortage in the UK still make a decent buy case for the housebuilding sector. Hold.

Celsis International

Biotech companies that actually make money are rare beasts, and investors looking at the sector might consider biotech services rather than the actual discovery of new drugs as a lower risk entry into the market. Celsis International is just such a company. Although at first glance Celsis might appear to be a tiddler in the biotech industry, its customers are anything but. The company is confident that it can maintain its double-digit growth record, and it has a strong balance sheet. Not for widows and orphans, then, but for anyone looking for a first foray into the biotech industry, Celsis looks like an option that is unlikely to cause too many heart flutters. Buy.



Schroders

Investors in the fund management group Schroders need to ask themselves two things: to what extent were this week's strong numbers based on exceptionals, and is the valuation looking stretched? The private equity market, which accounted for much of its recent strong performance, has worsened dramatically. And, on more than 16.5 times forecast 2008 earnings, the stock is certainly at the top end of its valuation range. Although we remain bullish about the long-term prospects for global equity markets, there are reasons for investors to remain cautious in the short term. On that basis, the sensible advice on Schroders has to be to bank profits.



Wolfson Microelectronics

Wolfson makes microchips that are used in a range of consumer devices. Its customers include some of the biggest names in the industry, including Sony and Apple. Despite what looked like an excellent set of numbers this week, the market sent its shares tanking due to the weak dollar – as almost all of Wolfson's revenues are in dollars, but almost all of its costs are in sterling. Still, Wolfson looks to be heading in the right direction. Its shares are still far from cheap, but for high-risk investors this week's sell-off has created a buying opportunity.



Humberts

A slice of humble pie for us, courtesy of Humberts. Just two months ago, we recommended the estate agency group as a "risky buy". Hopefully, we made the risks clear enough, because since then the shares have tanked. But much of the bad news was priced into Humberts, which runs 70 estate agents mainly in rural locations where house-price falls have not been as sharp as in London, and the stock is now cheap. Chief executive Max Ziff bought 150,000 shares this week at 40p, and while we would not encourage investors to follow suit, there is a strong case for hanging on as the market shows signs of getting over the Northern Rock shock.



Kier Group

Kier is unique in the UK as both a heavy construction group and a house-builder. Despite a solid order-book in its residential housing division, the company revealed this week that its sites have experienced a "notable reduction in the level of visitors" on the back of the near-collapse of Northern Rock. Although the rest of the business looks to be in good shape, there could be worse times ahead in the housing market. At this stage, having enjoyed such a strong run, investors with a tidy profit should err on the side of caution and, following this week's strong gains, bank some of it.



Lok'n Store

Valuing Lok'* Store Group, the AIM-listed operator of self-storage warehouses, depends on what you think it is. As a stand-alone self-storage business, it is very expensive, trading on more than 100 times forecast 2008 earnings. As a property company, it is incredibly cheap, trading on a 40 per cent discount to its net asset value and at a bargain basement price in comparison to its peers. Its major competitors, Safestore and Big Yellow, both trade at a premium to their NAV and at a substantial premium to Lok. With its strong balance sheet, low debt and expansion plans, a slowdown in commercial property valuations should in fact be taken as an opportunity for Lok. Buy.



Aricom

Aricom, the mining group spun out of Peter Hambro Mining in December 2003, moved from AIM to the full market this week, and for canny investors prepared to take a high-risk bet the stock looks attractive. The balance sheet looks strong, and the move to the main board should see the company move into the FTSE 250 at the next reshuffle – a strong buy sign as very few tracker funds will have any weighting in the stock. For high-risk investors, the move up to the full market looks like a suitable time to tuck some away.



Unilever

Unilever has an impressive portfolio of consumer staples – everything from Wall's and Ben & Jerry's ice cream, to Dove soap, and Signal toothpaste. A rationalisation of its global branding and manufacturing looks to finally be paying off, and although it is hard to believe that investors would not be better off if the company split itself up it is at least heading in the right direction. The shares trade on approximately 16.4 times forecast 2008 earnings. While that is not cheap it is a discount to Unilever's immediate peers - including Reckitt, Nestle and Proctor & Gamble. There should be improvement in the pipeline, and for investors looking for stable, low risk growth, Unilever looks a good long term bet. Buy.



Tullett Prebon

Few firms were licking their lips over the onset of turmoil in the financial markets, but it meant record summer months for interdealer brokers, such as Tullett Prebon, which cashed in on the ensuing volatility. This week the group set up a new electronic broking division, while outlining a geographical expansion strategy, planning to become the first interdealer broker in Vietnam, Kazakhstan and Pakistan next year. The stock looks good value, on a price to earnings ratio of 12.3 times 2008 estimates, cheaper than rival ICAP's 16.6 times. Buy.



Character Group

Any reader who took our advice last year and had a little punt on Character Group should be laughing - the stock has trebled since we first tipped it, following disposals and a refocusing of the company on its core children's toys business. There is still plenty to get excited about – Character has benefited from its licensed products, including the hugely successful Dr Who and Scooby Doo and its has just won a license to produce Postman Pat toys. The stock is still not overvalued, and with conservative forecasts, a rising dividend and Christmas rapidly approaching, Character ticks all of the right boxes for growth investors. There is still lots of potential here. Buy.

a.dewson@independent.co.uk

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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