The Investment Column: Premier Foods looks like a tasty morsel

Datacash shows plenty of promise, even at this level; Marshalls is on the right path
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The Independent Online

Premier Foods, the provider of groceries, had a good Christmas, it revealed in a trading update yesterday to the relief to the City. That was just as well. Unusually warm weather in October had put people off buying some of its key products.

It may seem bizarre but if the temperature rises a few degrees, consumers are less likely to buy the company's Ambrosia custard, its Hartley jams, Gale's honey, Sun-Pat peanut butter or its range of Loyd Grossman sauces.

There has been much activity at Premier. The company hit the headlines more than a year ago for a food scare - that has now blown over - relating to its Worcestershire sauce. On the corporate front, it has busy buying and selling businesses and restructuring its poorly performing potato business.

For better margins and the greater control over its destiny, Premier has been buying more brands and reducing its exposure to making supermarket own-label products. Three years ago, 40 per cent of its grocery sales came from branded goods. That figure now stands at more than 60 per cent. The company likes to buy tired brands or businesses in the higher growth health food sector. Among recent deals has been Quorn, the meat substitute. It sold Typhoo Tea but found it too difficult to compete with rivals which owned their tea plantations.

Premier has just launched a baked bean product using its Branston brand. It says its beans are made with more tomatoes in the sauce and, according to the company's research, they are preferred by consumers to the market-leading baked bean brand, Heinz.

Food is not a high-growth business. Premier is expecting underlying sales growth of 2 per cent when it reports for 2005. But its focus on health foods and resonant brands makes Premier a tasty morsel. At 313.5p, it's a buy.

Datacash shows plenty of promise, even at this level

Datacash makes its money selling and licensing payment processing software and technology, helping companies to authorise and settle credit and debit card transactions. Having floated on the London market back in the technology boom six years ago, it once saw its share price leap to almost 700p before falling all the way down to just 7p in May 2001.

Unlike many of its peers, Datacash survived, and having made the most of the boom in online retailers and online gaming companies - all of whom need ways to settle the payments they receive - it is now the sector's largest independent operator.

Releasing a pre-close trading statement yesterday, the company told investors that its 2005 pre-tax profits would be in line with expectations, and that transaction volumes had increased by almost 50 per cent over the past year. Furthermore, with the appointment of a well-regarded, new chief executive, Andrew Dark, the company believes 2006 may be another breakthrough year.

Shares in Datacash have risen by more than 150 per cent since the start of 2004, and although they look relatively highly priced - at 21 times this year's predicted earnings - such a valuation looks justified given the rapid growth. Although its shares' fastest growth may now be behind it, there is plenty left to interest the new investor. At 125.75p, buy.

Marshalls is on the right path

Yesterday's trading update from Marshalls, the paving slabs group, was better than expected despite the challenging housing market. The company did suffer a 1 per cent decline in sales in the domestic market as Britons lost their appetite for elegant paving and stonework amid much belt-tightening. Sales of products for the DIY market were particularly weak.

But only half of Marshalls' business is generated from home improvements. The rest is from commercial and public landscaping projects, where demand remains robust and sales were 4 per cent better than the previous year. Overall, sales rose 9 per cent to £359m in the year to 31 December, with acquisitions contributing £27m. Stripping them out, sales were up 1 per cent to £332m. The company is confident it will meet market expectations for the year.

Acquisitions remain key to its ability to deliver growth in the next couple of years. Last year it bought Paver Systems, a concrete products business, for £8.7m to broaden its range in Scotland, and Stoke Hall Quarry, a sandstone reserve in Derbyshire, for £3.1m. It closed or sold surplus properties, generating £4.4m.

With retailers showing more strength over Christmas than some had feared, some analysts feel there is less risk of a nasty surprise this year than previously thought. Marshalls generates a lot of cash, which could be used for a return to investors or acquisitions. The shares, at 310.75p, are still expensive, trading at 16 times forward earnings. But with the risk of a profits warning fading, the stock is worth holding.

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