Share Tips 2007: Undervalued gems that enticed the City experts

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The Independent Online

For a second year in a row our panel of professionals excelled themselves. Their portfolio registered a 49 per cent rise, outperforming both The Independent's tips and the wider stock market in 2006.

The traditional bottle of champagne for the best prediction goes to Patrick Evershed of New Start Asset Management. He tipped Neutec Pharma, a biotechnology company which has developed a treatment for life-threatening hospital fungal infections. Its shares rose a staggering 135 per cent after it was acquired by the Swiss pharmaceuticals giant Novartis in the summer.

A special mention must also go to David Cumming, fund manager at Standard Life Investments. He tipped Cambridge Antibody Technology, which saw its shares soar 88 per cent last year after the company was taken over by AstraZeneca.

This year's panel and their tips are:


The life assurer Friends Provident has developed some very good niche businesses in the UK and overseas, without much recognition from the wider market. Its potential new business growth is significantly undervalued.


Velti is a telecoms service provider that enables mobile advertising, marketing and mobile content. The company primarily operates in Greece, but has a presence in seven countries. Notably, it is rapidly expanding into south-east Europe.

Although Velti's target markets are relatively immature, they are enjoying significant growth. For an enterprise growing at 30 per cent a year, its shares are very undervalued. Based on 2007 earnings forecasts, the stock trades on a multiple of nine times earnings, well below the ratings of larger companies in the telecom and media sector. The AIM-listed group has plenty of cash on its balance sheet to fund its expansion, and I believe that in time the stock will be re-rated by the City.


Compass Group is an interesting stock for 2007. With a new management team in place, a rationalisation of the group's operations is taking place via the disposal of non-core assets and a focus on better working practices across the company. If management can deliver on their promises, this should lead to a rise in Compass profits and shares.


Air travel is a dependable growth market, particularly in Asia but also in more developed markets as well. This drives profitable aero engine aftermarket demand. Technological expertise results in much higher barriers to entry and pricing power than say the airline sector or other parts of UK manufacturing. Rolls Royce is therefore a genuine growth stock and is not being valued as such. Additionally, in an environment where companies with dependable cashflows are attracting substantial valuations, Rolls' fleet of installed engines looks particularly enticing.


I tip RC Group which, at 85p, has a market value of around £170m. RC is a Hong Kong-based IT products and services company focusing on the fast-growing area of biometric security. It designs, sells and installs security systems and networks using fingerprint access and facial recognition technologies. The shares have done exceptionally well since floating at 10p in mid-2004, and management has delivered better than expected earnings on many occasions. Global biometric revenues are projected to grow from $2.1bn in 2006 to $5.7bn in 2010, mainly driven by large-scale government programmes but also private-sector initiatives. Asia and North America are expected to be the largest global markets for biometric products and services.

The industries where biometric technologies are most commonly applied include law enforcement, government, financial services, gaming, hospitality, healthcare, hi-tech, telecom, retail and transportation. I believe this industry has substantial long-term growth potential, and RC Group appears well-positioned to exploit them.


This is one for the brave. Kensington is one of the main companies providing mortgages to people with poor credit ratings or on low incomes. The shares have continued to disappoint despite the company's earnings growth. This can be a very profitable part of the mortgage market, and has recently attracted competition from a number of the big financial institutions. Given Kensington's current low rating it looks vulnerable to takeover, as by acquiring the group one of its new competitors can increase their exposure to the sector very quickly.


I pick RAB Capital, the AIM-listed hedge fund manager I cofounded, as my tip. Anyone who invested in the group a year ago has made a profit of around 100 per cent. Our whole team at RAB is very focused on building shareholder value, and I hope that we will once again be one of the best investments in the market in 2007. Only last month the Mittal steel family raised its stake in RAB to around 7 per cent, showing their confidence in the company's future. They also invested substantial sums into our various funds - recently putting an extra £100m into our RAB Special Situations strategy fund.