The Investment Column: Man's money-making machine working smoothly

Inter Link Foods; Anite
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The Independent Online

Our view: Buy

Share price: 2508p (-46p)

Man Group has come a long way in the past two centuries. From humble origins as a Thames-side sugar trader founded by one James Man, the company has morphed over the last two decades into the world's biggest listed manager of hedge funds.

These are essentially money-making machines, with Man Investments' managers able to utilise a wider range of strategies, markets and geographies than traditional long-only rivals in the pursuit of higher returns.

And that flexibility amid the current market volatility means the group, led by chief executive Stanley Fink, is going from strength to death.

Ahead of its annual meeting for shareholders, Man revealed yesterday that its funds under management grew by $4bn to $54bn over the three months to the end of June.

Sales of $5.3bn in that time easily outpaced the $1.3bn in the same period last year, as both big institutional investors and the very rich looked to protect capital during the downturn.

Its latest fund launch, known as Man AP Enhanced Series 3, raised $600m, but will not start trading until the middle of this month and was not included in yesterday's figures.

Man now accounts for around 4 per cent of the $1,500bn global hedge fund market, and super rich individuals account for more than 60 per cent of Man's funds under management.

The growth of private investment in its hedge funds is easily outpacing institutional demand as a swelling number of millionaires scramble into the once heavily guarded funds.

Meanwhile, the group's Man Financial futures and options brokerage arm is seeing record business, and some City experts expect its partial flotation sooner rather than later.

Profit-taking saw Man shares ease 46p to 2,508p yesterday, valuing the group at almost £7.7bn.

The shares are trading at about 13.5 times projected 2007 earnings when allowing for performance fees, against traditional fund managers' shares that are trading at more than 15 times forecasted earnings. Should Man Financial be spun off, Man Investments would be trading on less than 12 times projected 2007 earnings.

Man's board reassured shareholders that "it remains very confident about the group's prospects for the year", as investors continue to look to diversify away from traditional stocks and bonds.

Those shareholders have every reason to share the board's confidence. Buy.

Inter Link Foods

Our view: Buy

Share price: 387.5p (+48.5p)

Even Mr Kipling would be forced to concede that his arch-rival among the country's cake makers, Inter Link Foods, delivered exceedingly good annual results.

The Blackburn-based baker, which supplies the likes of Tesco and J Sainsbury, appeared yesterday to have put May's shock profits warning behind it as it unveiled record annual profits for an eighth successive year.

At £7.1m, pre-tax profits were 20.7 per cent better in 2006 than a year earlier after sales soared by almost a third to £130m. Adjusted earnings per share grew 9 per cent to 44.1p, leaving a surprisingly generous full-year dividend of 7.5p to provide the icing on the cake.

The shares, which sat above 750p before the May profit warning saw them tumble by almost a third overnight, advanced 48.5 to 387.5p on the Alternative Investment Market to trade around 6.7 times forecasted earnings.

No fewer than 11 acquisitions across the 22 years since it was founded has transformed Inter Link into the biggest player in a cake market still expanding (surprisingly, given the current obsession with healthy eating) by 6 per cent a year.

The company churned out 48,000 mince pies an hour in the run-up to Christmas, making a total of 120 million over the festive period, and this year will produce Christmas puddings for the Mrs Peeks brand for the first time.

It does faces stiff competition from a reinvigorated RHM, owner of Mr Kipling, in a food retailing environment that is already among the most challenging anywhere, as the supermarkets squeeze suppliers to steal a march on rivals.

But deep cost-cutting, streamlining of production, a flow of new products and projected earnings growth of at least 15 per cent in the coming year have made Inter Link one of those rare exceptions that prove the rule: investors can have their cake and eat it. Buy.


Our view: Hold

Share price: 71p (+2.25p)

Anite hit the ground running in 2006. Following its exit from the troublesome State of Victoria contract, the technology company yesterday turned in full-year results that beat expectations.

At £24.7m, profits before tax comfortably beat City forecasts. That spurred the shares 2.25p to 71p, despite revenues of £170m being a touch disappointing.

Few observers had anticipated that Anite's profits would exceed forecasts, but a very strong performance from its telecoms testing division boosted results and offset margin weakness in its public sector business.

Anite has decided to pay its first dividend since 2001, and will continue its share buyback programme, all of which should provide support for the stock.

Having drawn a line under its legacy Australian contract problems, management can concentrate on generating growth in its core businesses.

Its travel business has won two significant contracts since the end of the year worth around £12m. The company is also gearing up to win more work in telecoms testing as operators start investing in fourth-generation networks.

Steve Rowley, Anite chief executive, has batted away calls to break up the company. Anite trades below its sum-of-the-parts valuation of over 90p due to its conglomerate structure and spreads itself across disparate end-markets including public sector, telecoms testing and travel. Mr Rowley rightly points out that two years ago, the pressure was on to sell its telecoms testing division, a move that would have looked foolish in hindsight. Anite shares are trading at around 13.6 times expected earnings, compared to a sector average of around 18 times. They may look cheap on that basis, but analysts factor in a discount of around 10 per cent due to the company's conglomerate structure.

This company is on track to realise further value across its various businesses but the pay-off may take some time. Hold.