The Investment Column: Stagecoach offers safety and solidity in volatile times

Tullow Oil; Delek Global Real Estate
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Our view: Hold

Share price: 202.25p (+1.25p)

Thanks to the combination of summer downpours and the market sell-off, investors have been looking for safe havens, and Stagecoach, the rail and bus transport operator, has provided excellent cover.

Despite the wider market bloodbath, shares in Stagecoach are at the same value that they were in the second week of July - and yesterday's interim management statement should provide further reassurance.

Like-for-like revenue growth in the first three months of the year beat market forecasts across the board. UK bus revenue was up 7.6 per cent behind UK rail revenue, which surged 15 per cent.

The Virgin Rail joint venture posted a 13.4 per cent rise while the North American operations posted positive numbers despite a reduction in revenue from the Greater Toronto Airport Authority, which reduced its level of service. That was well flagged and a 4.3 per cent rise in North American revenue is a good performance under the circumstances.

Stagecoach will begin running the East Midlands railway franchise in November and, even though it lost out on bids to run the new Cross Country and Intercity East Coast franchises, its position in UK rail remains strong.

So why not buy the shares? Well, thanks to its recent strength, the shares already trade on just under 14 times forecast 2008 earnings, a rather full price for a transport stock. In spite of the bullish interim statement, it is difficult to get excited about Stagecoach and there is better value to be found elsewhere in the sector.

That said, the prospective yield, at around 4.25 per cent, looks safe and is worth hanging on for. Stagecoach is a solid performer, as yesterday's news shows, but for investors looking for more excitement and potential capital growth there is plenty more to choose from. Hold.

Tullow Oil

Our view: Buy

Share price: 483p (+20.5p)

With at least 35 fully listed oil companies on the London market, never mind the mass of tiddlers on AIM, perhaps it is little wonder that investors find it hard to sort the wheat from the chaff. Most are content picking either Shell or BP and leaving it at that - but there are some mid-cap stocks worth considering.

Tullow Oil looks like one of them. Tullow has gas operations in the UK, all in the North Sea, and is running a large number of exploratory drilling operations in Africa and Asia. In total, it has 123 ongoing projects.

Yesterday's news of a potentially significant light oil find at the Hyedua-1 well off the coast of Ghana could be very good news. Some analysts believe the region could contain up to 800 million barrels, and that belief is now being backed up by bullish test results. Tullow is planning three additional appraisal wells before the end of the year, and more commercially viable discoveries are on the cards.

The broker ABN Amro believes that at a constant price of $60 per barrel the Ghanaian operations could be worth up to 155p per share to Tullow on their own. The risk is also spread because Tullow is not working these assets alone - it has 49.95 per cent of the Deepwater Tano licence and 22.9 per cent of the West Cape Three Points licence, of which Hyedua-1 is just a small part.

Unlike many other mid- and small-cap oil stocks, Tullow is already highly profitable. It is forecast to make £245m in pre-tax profits in 2008, putting the stock on a reasonable 24 times forecast earnings. Considering the potential of the find in Ghana and Tullow's other projects, that number could come down dramatically. Tullow looks like it belongs in the "wheat" category of mid-cap oils. Buy.

Delek Global Real Estate

Our view: Buy

Share price: 180p (+9.5p)

So far, 2007 hasn't proved to be a great year to list a real estate group. Delek came to the market in April, and like the rest of the sector it has found little support, albeit a 15 per cent decline since listing isn't so bad relative to its peers.

The company, the largest real estate group on AIM, released debut interim results yesterday and there was enough in them to suggest the market has oversold the stock. Pre-tax profit of £55m was ahead of forecasts, as was the 230p net asset value per share, the most important valuation indicator for the property sector.

Delek's portfolio includes a mixture of property assets, including car parks, Marriott hotels and residential property. The mix does not just stop at the type of property Delek owns - its geographical spread across the UK, Switzerland, Canada, Finland and Germany also provides a solid buffer against the vagaries of local real estate markets.

With plenty of cash in the bank, a quality portfolio of assets and low-risk tenants, mostly signed up to long-term contracts, Delek should not be trading at a 27.7 per cent discount to its net assets. For investors prepared to bet the credit market does not end in the worst-case scenario, Delek looks like a quality buy.

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