The Investment Column: Invensys is now in better shape, but its rally reflects that

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The Independent Online

Our view: Hold

Share price: 287.75p (+15.5p)

There can be few worse examples in the past 20 years or so of a merger creating little value for shareholders. When BTR and Siebe merged to form Invensys in 1999, the former was already in pretty bad shape while the latter was struggling. The combination of the two has been little short of a disaster for shareholders.

However, last week's interim results were greeted enthusiastically by investors, and the chief executive, Ulf Henriksson, certainly seems to think that the turnaround is complete. Investors must ask whether they believe that or not - despite the surge in the share price, the results were only slightly ahead of market forecasts.

The company is certainly in better financial shape than it has been for a long time. May's rights issue was heavily oversubscribed, leaving the company with net cash proceeds of £341m. In the second quarter, operating profit rose 41 per cent to £61m based on a 7 per cent increase in revenues to £633m. A pre-tax profit of £51m was the first interim profit the company has made since 2001.

However, thanks to the rally over the past three sessions, much of the improved performance is already in the share price. The shares are up 25 per cent since Friday morning, closing at 287.75p yesterday, more than enough for a set of results that hardly blew forecasts out of the water.

Invensys operates across 60 countries, providing manufacturing and industrial customers with automation, controls and transportation technology. It counts a significant number of major household names as customers, including BP, Shell, Bayer, Eli Lilly and Kraft, but the company has struggled to turn a high-cost, debt-laden business into a profitable enterprise. The controls division was expected to remain under pressure thanks to its exposure to the weakening US consumer goods manufacturing sector, but results from the division showed more improvement than the market was expecting.

The positive outlook statement that came along with last week's results is largely responsible for the surge in the share price, but it is too early to pop the champagne corks just yet. Invensys is in much better shape than it has been for a long time, but there should be better buying opportunities. Hold.

Robert Wiseman

Our view: Hold

Share price: 462.25 (+13p)

There were milkshakes all round at Robert Wiseman Dairies yesterday as the Scottish milk group toasted a strong first half. After the turmoil of recent years, which have seen supermarkets chop and change their milk suppliers at a phenomenal rate, life has settled down for Britain's biggest dairies.

Wiseman wound up with Tesco and J Sainsbury as its biggest customers, and reckons it's got itself "the two best horses in the race". It has even squeezed some price increases out of them, helping to breathe life into its flagging profit margins.

Operating margins, while still paper thin, recovered to 2.36 pence per litre (ppl) from 1.8 ppl this time last year. This helped profits before tax to soar by a third to £16.4m - above expectations. The strength of the rebound was a surprise, given the cost pressures facing the group on the fuel and packaging front.

A new depot in the South-east and a new dairy scheduled to come on stream early next year in the South- west means the group now has a truly national footprint. Its new brands, such as The One, with 1 per cent of fat, and Purity, which has an extended shelf life, are gaining traction. As is its organic offering: it had barely 5 per cent of the market a couple of years back, but has increased that to 24 per cent.

This column called it wrong when it steered investors away from Wiseman a year ago. Apologies. Analysts at Panmure Gordon lifted their full-year profits estimates yesterday by 7 per cent to £31m, which puts the shares on a forward price-to-earnings ratio of 14.2 times. That's high enough for now.

Mecom

Our view: Buy

Share price: 63p (+0.75p)

This year, Mecom emerged as a unique beast on the London stock market, a major owner of newspapers in continental Europe. While most London investors want to get as far away from newspapers as possible, as a result of falling circulations and advertising revenues here, Mecom has shown that conditions are much more promising on the Continent.

A trading update from Mecom said that advertising revenues were growing in all its major markets - Denmark, Norway, Poland and Holland. Since buying Norway's Orkla Media earlier this year, for £627m, Mecom has been tidying up its assets, by selling off non-core interests - such as minority stakes in two Norwegian papers. That has meant that it was able to repay £40m of a £93m loan extended from Orkla group as part of the newspaper deal. Things are progressing ahead of schedule. Buy.

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