The Investment Column: GUS investors will be in the money come October

Centaur; Bespak
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The Independent Online

Our view: Buy

Share price: 990.5p (+1p)

As first quarter swansongs go, yesterday's trading figures from GUS were far from bad. Sales at Argos, the bedrock of its ARG retail division, outstripped even the group's expectations while Experian, its financial services arm, had yet another stellar performance.

Yet GUS failed to excite the City, with shares in the group closing just 1p higher. Never mind Great Universal Stores, the group's full name as was, what GUS really stands for these days is Great Untold Stories. It was in response to reactions such as yesterday's modest share price rise that the management decided to push the button on breaking up the conglomerate by spinning off its two arms into two new companies.

The demerger is set for October, making next week's annual shareholder meeting the last of its kind. Shareholders will receive shares in each company, leaving it up to them whether they hang on or sell out. Given that most analysts regularly ascribe a £11-plus sum-of-the-parts valuation to GUS stock, the hope is that once the traditional conglomerate discount has been eradicated, the shares will soar.

This column has long been a fan of GUS, and rightly so, on the whole.

Figures yesterday showed there were chinks of light in a black high-street cloud. Namely, the 7 per cent rise in like-for-like sales at Argos. This was on the back of soaring demand for flat screen televisions, partly boosted by attractive discounts.

At Homebase, the good news was that at least sales hadn't worsened. Underlying sales were given for the four months to 30 June (to avoid Easter distorting the picture) were 5 per cent weaker. Within Experian, which will sit in the support services sector once it is spun off, organic growth was 8 per cent, with its core North American arm managing slightly better. The group admitted last week there were plenty of would-be bidders, although none have offered enough to tempt it to abandon its plans - so either way investors should be in the money come October. Buy.


Our view: Buy

Share price: 113.25p (+6.25p)

While much of the consumer-facing media industry is struggling to keep its head above water, much of the business-to-business magazine sector is seeing the good times flow. That certainly seems to be the case at Centaur, which is feeling so good that it is to put its full-year dividend up by a whopping 76 per cent.

It produces a number of titles that are well known in their industries, including The Lawyer, Money Marketing and Marketing Week.

Centaur has seen a 10 per cent rise in advertising revenues, on a like-for-like basis, for the year ended June. In a trading update yesterday, before full-year results, it said results should be expected to come in at the top end of City expectations - that is, £12.6m. This will represent profit growth of 25 per cent.

And, next year, the company said it would beat forecasts for the 2006-07 year, leading Numis Securities to add £1m to its pre-tax profit number, taking it to £16.5m. The basic reason why Centaur is doing well is that most of the markets in which it operates are seeing good trading conditions.

The titles not raking in so much cash are, unsurprisingly, those serving the hard-pressed media industry.

Advertising forms about 55 per cent of Centaur's revenues, an unusually high proportion for a business-to-business publisher. The company said ad sales growth was coming in particular from display advertising and internet recruitment.

The other major news yesterday was that Graham Sherren, who founded Centaur in the 1980s, is giving up his chief executive role but will remain chairman. The finance boss Geoff Wilmot is the new chief, so the succession issue seems to have been settled smoothly.

Centaur listed at 100p in March 2004. It has not made much progress since then but, with prospects looking rosy, the shares are trading on 15 times 2007 earnings, which makes this a buy.


Our view: Buy

Share price: 619p (16p)

Bespak shareholders were given a welcome shot in the arm yesterday by annual results from the drug delivery specialist much improved on last year and a touch better than City expectations.

At £13.5m, profits before tax and special items were 24 per cent higher in the year to the end of April than in the previous year.

Sales rose 17 per cent to £93.1m, bolstered by an £11m contribution by King Systems, which Bespak acquired for $95m in December.

Bespak expects King, a maker of surgical masks and respiratory equipment to deliver sales of about£30m when fully integrated. The deal eased Bespak's reliance on contracts with drug companies.

Sales by the group's anaesthesia and respiratory care division were up 10 per cent on the year. Sales in Bespak's other divisions - consumer dispensers and inhaled drug delivery - grew by a more modest 3 per cent.

Prospects for the latter look the most exciting, after approval in January from the European Commission for Exubera, the first inhaled treatment for diabetes.

Earnings per share of 35.4p were 15 per cent better this year than last, while the total dividend was maintained, as expected, at 19.1p per Bespak share to give a yield for the year of 3.2 per cent.

The shares are trading at about 16 times this year's forecasted earnings and 15 times projected 2007 earnings. Set beside others in the sector, this rating looks fair.

But interesting growth prospects may make Bespak the choice of investors looking for a healthcare company with a (relatively) strong yield. Buy.