The Investment Column: Market research group rides the electoral cycle

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The Independent Online

Our view: Hold

Current price: 245p

The past three years have been a great time to be invested in the mid-market. However, not everyone's a winner. Although the market research group Taylor Nelson Sofres is up approximately 20 per cent, it has lagged behind its peers, and yesterday's interim trading statement hinted that a turnaround is taking its time.

The company expects to report organic revenue growth of 5 per cent, fractionally ahead of forecasts, but will end up only marginally better because of the negative impact of a weak US dollar. A lack of definitive numbers in the statement should be offset by Taylor Nelson telling investors that its US business, which represents 23 per cent of revenue, is showing "encouraging progress" after last year's grim warning. The outlook statement was just as encouraging about Europe, but again there were no numbers to back it up.

Gathering consumer and political polling is a cyclical business - when times get tough it is usually the first cost-cutting casualty. But the outlook for the US is more favourable, and with interesting national elections both there and in the UK in 2008, now may not be the time to sell.

However, Taylor Nelson's political polling business lags behind its competitors, and the lack of clarity in yesterday's statement, particularly with reference to consensus market forecasts, is slightly worrying.

The company is busy buying back its own stock and it should complete £68m of buybacks in the full year. Given its recent problems and the lack of conviction in the statement, there is little reason to believe that the shares are likely to start outperforming soon, and on 16.5 times forecast 2008 earnings, the shares are not cheap either. But if you've hung on this long, it might be worth seeing how the rest of the year pans out. Hold.

Absolute Capital Management

Our view: Buy

Current price: 529p

Until recently hedge funds shied away from listing on the public markets; if your reputation is built on secrecy, opaqueness and servicing only the super-rich, it paid to stay away from prying eyes.

But Absolute Capital Management has been public for a while and its share price is up nearly 300 per cent since listing in March last year. At the very least, yesterday's trading update justified the surge in its share price. The company now has more than $3.1bn of assets under management, more than double the amount it was managing just six months ago.

It runs its suite of 12 funds on a absolute returns basis - meaning that its funds are not benchmarked against any index. Absolute returns mean that the manager seeks to make a positive real-term return regardless of the volatility in debt or equity markets.

The company also confirmed the creation of a new division, Absolute Capital Property, and the acquisition of €100m of new assets for €12.5m, previously run by another AIM-listed fund manager, North Asset Management. The deal, although relatively minor in terms of numbers, should give ACM a decent foot in the door to the lucrative real-estate hedge fund arena.

Importantly, ACM's staff owns 34 per cent of the stock.

In spite of its strong recent rally, investors in favour of the bigger names in the industry have largely overlooked ACM. But continue to ignore ACM at your peril - the shares trade on a significant discount to their peers and, according to house broker Panmure Gordon, a 700p share price implies just 10.4 times forecast 2007 earnings. Buy.

Spice Holdings

Our view: Buy

Current price: 560p

For the uninitiated, Spice Holdings isn't a supplier to the Indian food industry. But as investments go, it has been more vindaloo than korma.

Spice is a support services business with wide-ranging operations in three sectors: commercial, utilities and public services. It makes its money doing everything from upgrading electricity networks, water meter installation and leak detection, insurance claims and energy management services.

Yesterday's full-year numbers were impressive - pre-tax profits rose 48 per cent to £10.1m, while revenue almost doubled to £228.6m. Despite making 12 acquisitions since coming to AIM in August 2004, most of the growth is still organic and its markets remain attractively fragmented.

The key to Spice's performance and its future growth is its strong position in non-discretionary spend. Utility networks in the UK are old; most of the water companies are still using pipes that were built by the Victorians. Over the next 10 years much of the electricity and water network is to be upgraded, and Spice is in pole position to win a significant chunk of this regulation-driven business.

Even the devastating floods across England over the past month should mean good business for Spice. It supplies engineers and contractors who manage insurance claims - and then do the work required once the claim is processed.

With the shares trading on approximately 18 times forecast 2009 earnings, there is a lot of good news priced in. But Spice has low debt and excellent cash generation, and has consistently beaten expectations. With more big contract wins potentially in the pipeline there is much left to play for. Keep buying.

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