Our view: Buy
Share price: 560p (+60p)
A bullish note from UBS sent PayPoint shares soaring 12 per cent yesterday. But, even after this rise, the stock is still 25 per cent lower than it was three months ago, making it a great long-term bet.
PayPoint, which listed in 2004, runs an electronic bill payment network located in 14,000 convenience stores in the UK and Ireland. It collects payments on behalf of almost 500 clients including major mobile phone operators, cable television companies, energy suppliers and local councils.
As UBS rightly points out, the group offers good long-term value for investors. Despite the retreat in the shares, the Swiss broker is convinced that PayPoint continues to experience strong growth in its transaction numbers.
The company is benefiting from the decline in the number of Post Office branches. Meanwhile, people are less likely to visit a Post Office - which is in many ways acts as a rival to PayPoint - as state benefits are now paid directly into accounts rather than over the counter. It is also steadily building up its client base. Recently, Powergen in the East Midlands has opened up a contract to PayPoint to provide top-ups for electricity meters while punters will soon be able to buy their TV licences through the group.
An international expansion of PayPoint services is a possibility and could prove to be a major avenue of future growth. UBS expects PayPoint to update the City on this front at its September trading statement or in November when it is due to publish its interim results.
In May, the group unveiled a 152 per cent jump in annual profits to £20m. UBS forecast this figure to rise to £23m this year and to £27m in the year after. Given its prospects, PayPoint shares, which trade at 21 times forward earnings, are worth tucking away.
Our view: Avoid
Share price: 31p (unch)
On Tuesday, magazine publisher Future issued its third profit warning of the year. Yesterday came a slew of analyst downgrades in response to the latest setback at the group.
Future is suffering from weak advertising revenues and newsstand sales both in the UK and in the US. The group, which publishes more than 150 consumer magazines including Xbox, Total Film and Fast Car, is now forecast to make a profit of just £9m this year compared to £13m previously.
Although Future shares trade at just 12 times forward earnings, another profit warning is very much a possibility. It is facing fierce competition and challenging trading conditions in the media sector with the consumer magazine market one of the most difficult segments of this industry at present.
Future is expected to make a pay-out of 1.8p per share this year, leaving its stock yielding a potential 5.8 per cent. However, as analysts warned yesterday, there is a high chance the dividend will have to be cut in light of Future's weak earnings. There seems little reason to hold this stock.
Our view: Only for the brave
Share price: 27p (- 0.75p)
Lonrho Africa's executive chairman, David Lenigas, is determined to restore the company to its former glory. When Tiny Rowland was at its helm, it was a pan-African conglomerate owning anything from mines to hotels, car dealerships to pig farms.
When Mr Lenigas joined the company in December all that was left of the late-tycoon's empire was a hotel in Mozambique and £20m in cash. However, the Australian, who built up Asia Energy, the AIM listed Bangladesh coal miner, has been quick to invest the money. He has bought a controlling stake in Luba Freeport, the only deep port in Equatorial Guinea. Paying just £1.1m for the 63 per cent shareholding, he looks to have got a bargain for Lonrho.
The West African country, famous for a recent coup attempt that Sir Mark Thatcher allegedly helped to fund, is said to have huge offshore oil reserves and Mr Lenigas is betting that the port will become a centre for servicing a rapidly growing offshore oil industry. Of course, the downside to the deal is that the crazed dictator who presently rules the former Spanish colony, a Mr Teodoro Obiang Nguema, decides to take control of the port once Lonrho has financed its development and business starts to takes-off. But, that is one of the risks associated with investing in Africa.
Other acquisitions by Mr Lenigas include a stake in a South African diamond producer and a 10 per cent shareholding in Brinkley, a uranium miner in the country. Yesterday, Lonrho raised £5.6m via a placing of new shares at 28p, which comes on top of a £12.8m funding raising earlier this month. This will be used for further investments, including the development of Luba.
Going forward, Lonrho's chairman is looking for deals in pretty much all industries across the continent. This helps diversify the risk to shareholders. Nevertheless, the company is still a high-risk investment proposition suitable only for the bravest of investors.Reuse content