Lonmin's glittering prospects clouded by over-production fears

Fly in the ointment spoils Findelÿs rating; Ambiguous statement makes Euromoney a hold

Lonmin is a rare and precious thing: a stock market investment that has gone up and up through the bear market and has proved itself willing to throw surplus cash back to its shareholders. The stock hit a new record yesterday, as investors considered that the prospects for the platinum and gold miner are still as glittering as ever.

Even a run of poor profit performance can, it seems, be overlooked. The half-year figures, for the period ended 31 March, released yesterday showed profits slumped from $252m the year before to $138m. The problem has been the platinum price, which has fallen back over the intervening period. Whereas in the six months to March 2001, Lonmin sold platinum for an average $586 per troy ounce, but the equivalent figure in the period just reported was only $460.

That fall was only partly compensated by the plunging value of the South African rand. For a company which reports in US dollars, that has reduced the cost of getting money out of the ground in the country. Lonmin is what remains of Tiny Rowland's Lonrho conglomerate, constructed in the empire-building Eighties and deconstructed in the Nineties.

Its heart is in platinum, but it still has around 10 per cent of its turnover in gold, thanks to four mines in Zimbabwe and a stake in the debt-burdened gold mining group Ashanti. The Zimbabwe assets have been little but trouble, and Lonmin's management hopes to sell the mines to a company more conducive to the Zimbabwean authorities, a company with fewer imperialist overtones.

Although there are no talks at the moment, a sale looks possible thanks to the recent surge in the gold price – as investors, nervy over the prospects of terror attacks in the West and nuclear conflict in Asia, have put their money into the ultimate safe haven asset.

So its real future is in platinum and its fortunes are tied to the medium and long-term prospects for the platinum price. The company thinks that looks robust. Demand should continue to rise as the metal is increasingly used in catalytic converters in cars because of stringent environmental legislation, and overall car production has recently picked up.

The worry, though, is that Lonmin's rush to increase production from its South African mines could herald a period of oversupply. Its bigger rivals are doing just the same.

At least the company is planning to reduce its dependence on the politically volatile southern African region by opening up mines in Australia and Canada. That, and last year's capital reduction that created a more efficient balance sheet, is plenty to justify Lonmin's rerating. On 15 times this year's earnings, the shares are still worth holding.

Fly in the ointment spoils Findelÿs rating

Findel is the old Fine Art Developments mail order business that changed its name a couple of years ago. It has proved a strong performer in a low-profile way, with the shares growing from 77p in early 1999 to 326p yesterday.

The latest full-year results show profits before exceptionals growing by a third to £28m and strong growth is expected in the current year.

Findel has two divisions. The home shopping unit includes a string of catalogues selling everything from garden furniture to soft furnishings as well as knick-knacks such as decorative plates. It's not an upmarket business, catering for a C2D demographic. But its customers are loyal and are increasingly spending more money with the group as it moves into higher-ticket items. These include fridges, DVD players and sofas which have the double benefit of having higher margins and a finance element as customers borrow to pay for them.

The other division is education supplies where Findel last year acquired the Novara business which sells everything from desks and chairs to maps and plastic letters for primary schools. This should be a growth area as the Government invests more in education.

Also, Findel has managed a remarkable turnaround of the business taking it to a £6m profit last year from a £5m loss the year before, after increased investment and improved ordering speeds.

All this looks promising and analysts are upping their current-year forecasts to £34m to £36m, putting the shares on a forward p/e of 11.

The one fly in the ointment is the issue of capitalised pre-payments on the balance sheet. These grew from £31m to £37m. Findel capitalises the cost of new customers over three years rather than writing it off straight away. It says this is justifiable because its customers stay loyal for years.

Credit Suisse First Boston, the company's broker, increased its share price target to 360p yesterday but said pre-payments remain "an issue" which could "restrict the growth of the rating". On that basis there seems little reason to buy.

Ambiguous statement makes Euromoney a hold

Euromoney Institutional Investor, the publisher and conference group majority-owned by Daily Mail & General Trust, should have chosen its words more carefully yesterday.

An ambiguously written interim statement appeared to suggest that while the second quarter of its financial year (January to March) was an improvement on the first, trading went downhill in the third. The shares closed down 5.5 per cent at 345p, despite the fact that the house broker, UBS Warburg, actually raised its profit forecast for 2002-2003.

What the company was trying to say was this: although Q3 is down on Q3 last year, the year-on-year difference is not as bad as it had been in Q1 or Q2. The trend is improving, partly because the comparisons are getting easier, but also because the company is benefiting from cost-cutting measures.

In the first half, revenues fell 11 per cent to £89m, while operating profit slipped 5 per cent to £13.3m. Given that this is a business-to-business publisher and conference and training group, these decreases are hardly surprising. Subscriptions at the magazines have held up well but advertising is down 16 per cent. With a tightly-run ship and two market leading titles – Euromoney and Institutional Investor, aimed at City professionals – the company is well placed for the recovery.

Numis, the broker, forecasts current year earnings of 22.4p a share, putting the stock on a forward multiple of 15. The shares have had a decent run since October, so it's a hold.