The Investment Column: Concern that Amvescap has not shaken off its complacency makes it one to avoid

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The Independent Online

Our view: Avoid

Share price: 481.25p (+22.25p)

The Anglo-US fund manager Amvescap has had a rocky ride over the past five years, as it has struggled to rebuild its shattered reputation in the wake of the US market-timing scandal.

Like most fund managers, the group was only just recovering from the effects of a three-year bear market when the New York attorney general, Eliot Spitzer, first launched his inquiry in September 2003. With a single blow, Spitzer devastated the reputation of Amvescap's Invesco and AIM brands, sparking another mass outflow of assets, and a sharp slowdown in new business.

Against such a backdrop, and with its shares trading not far above seven-year lows, it came as little surprise when CI Financial, the Canadian fund manager, made a bid for the group last year. The outgoing chairman Charles Brady fought the bid defiantly, refusing to let the Canadians anywhere near the company's books. And eventually they walked away.

Although the past six months appear to have seen a slight improvement in Amvescap's fortunes - including its first quarter of net inflows for four years - investors were rattled yet again in the spring, when the company paid Mr Brady a $9m (£5m) golden handshake on his retirement. It was claimed that this was reward for fighting off the CI bid and appointing his successor. However, shareholders were furious, claiming these achievements were all part of his job, and couldn't possibly merit such reward - especially after the group's lacklustre performance of the past few years.

The new chief executive, Martin Flanagan, was also paid several million dollars on his way in the door, as well as being handed a four-year contract (four times longer than corporate governance guidelines recommend). Although the City broadly welcomed yesterday's news that the company has bought a small private-equity outfit in the US, there is still a deep suspicion about the capability of Amvescap's new management, and concern that the group has not yet shaken off its complacency. There are better choices - such as Schroders - for those looking for exposure to this sector. Avoid.

IG Group

Our view: Hold

Share price: 215p (+13p)

IG Group, Britain's biggest spread-betting player, says it is benefiting from a progressive desire among individuals to take control of their financial affairs. Five years ago, 8,000 clients regularly traded through the firm. Today, this figure stands at more than 25,000.

Why are punters increasingly turning to spread-betting firms rather than traditional stockbrokers? The answer lies in the fact that the likes of IG allow investors to trade a large variety of financial instruments from one account. These include anything from UK stocks to international shares, global indices, currencies and commodities. They also allow punters to take large positions while putting up a relatively small cash outlay and, because spread-betting currently falls into the same fiscal category as gambling, winnings are tax free.

Yesterday, IG unveiled a stellar set of full-year results. Core profits rose 51 per cent to £52m as sales jumped 44 per cent to £89m. Over the past eight years, IG has grown its revenues at a compound rate of 40 per cent.

The group is highly cash generative and now boasts a cash pile of £45m on top of the £30m it needs to keep on its balance sheet for regulatory reasons.

IG's chief executive designate, Tim Howkins, hinted yesterday that a part of this might be used for acquisitions, should the spread-betting industry start to consolidate. However, if he fail to find a good deal, investors can expect a return of money through a share buy-back.

Mr Howkins believes there is still plenty more growth to be had in the UK, but is not content to leave it at that. He plans to expand IG overseas. It already has a presence in Australia and Singapore and soon hopes to open an office in Germany.

Although at 15 times forward earnings IG shares are not cheap, the company's impressive growth makes them worth holding.

Inspace

Our view: Buy

Share price: 106.5p (- 19p)

Inspace makes its money by running local housing authority contracts for the maintenance, repair and improvement of social housing. Yesterday's trading statement did not give much away on the numbers front but did confirm that current trading is getting tougher and that the company is to introduce a more conservative approach to forecasting revenue.

The news is disappointing, especially when compared with Inspace's rivals in the social housing maintenance market, all of which have reported significant increases in contract wins in a market worth an estimated £20bn per year.

The company said there has been a lag in new social housing contract awards and an underspend on the Decent Homes, the Government's affordable housing initiative. Inspace also unveiled plans to buy Widacre, a smaller rival. It expects the deal to enhance its earnings by 8 per cent in the first year.

After yesterday's sharp fall, the shares are currently trading on just over 10 times revised 2006 pre-tax profit forecasts. Although there is some potential for more disappointment, there is also room for improvement, and for some consolidation in the sector. For brave investors, the shares are worth tucking away for the long term. Buy.

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