The Investment Column: Standard Life is well worth a punt

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The Independent Online

Our view: Buy

Share price: 210p to 270p

The UK's biggest float of the year will finally get under way on Monday as Britain's third largest life insurer, Standard Life, completes its transition from a mutual company to a PLC.

Just a few weeks ago, this looked to be terrible timing. With the FTSE 100 down more than 10 per cent since its April highs, Standard's chief executive Sandy Crombie was forced to slash the flotation price range.

But after a strong run last week, the market is now down only about 4 per cent from its recent peaks - much less than the 12 per cent by which Standard cut the bottom end of its float range.

As things stand, Standard looks likely to float somewhere in the middle of its 210p to 270p range, giving it a market value roughly equivalent to its embedded value (a common way of valuing life insurers). This still leaves it at a significant discount to its other UK rivals, and with some room for improvement in its valuation over the coming months.

Although Standard suffers from being overweight in some of the less profitable financial sectors - such as UK pensions - its margins have been improving since the management began its overhaul of the business two years ago. And while it looks unlikely to match the margins of its UK rivals without a significant shift in its business mix, its strong market share combined with a rock-solid brand give it every chance of turning things around over the longer run.

Furthermore, the make-up of its shareholder base makes the chance of a post-float share price slump less likely. Well over half of the company's investors are expected to be individuals who received free shares as part of the group's demutualisation, and who will get even more if they do not sell up during the first year. Also, the board has said it plans to pay a healthy dividend yield of 4.5 per cent in the first year.

For those who received free shares, it is not only a no-brainer to hang on to them for the first year, but also worth seriously considering your option to buy more shares at the 5 per cent discount which Standard is offering to customers.

Even for those who are not customers, Standard looks well worth a punt. Even if the management fails to maintain the momentum, there is a long list of rivals who are interested in bidding for the business if it begins to trade at a discount.

If the group floats at the middle to bottom end of its proposed range, we believe the shares are a buy.

Torex Retail

Our view: Hold

Share price: 63p (-6.25p)

Torex Retail has been one of the most acquisitive companies in the past two years. Spun out of the merged iSoft/Torex business in 2004, the retail systems developer has made a string of purchases under the leadership of Chris Moore - so much that some analysts were starting to worry when Torex would find the time to integrate them all.

Yet just when there seemed to be a lull in activity, Torex Retail has splashed out nearly £50m on its key British rival Retail J. The price paid has caused consternation. Retail J, founded in 2002, had sales of only £4.6m and earnings of £3.2m last year and there is little scope for cost savings. Torex is paying a multiple of 20.7 times full-taxed earnings and about 10 times historic sales.

But Torex has admitted that Retail J's electronic point of sales system is superior to its own and it has been grabbing market share at Torex's expense, with an impressive list of clients including Selfridges, FCUK, Bhs and B&Q. It may be a case of "If you can't beat them, buy them".

With a strengthened balance sheet, a key competitor removed and no acquisitions on the horizon for at least six months, investors should hang in there. Hold.

Begbies Traynor

Our view: Buy

Share price: 182.5p (+3p)

Just like the explosion in consumer debt, the stock market has seen an explosion in companies seeking to take advantage of a surge in bankruptcies, both personal and commercial.

Around 85 per cent of Begbies Traynor's revenues come from corporate insolvency and recovery work, where the company has invested heavily, and the corporate finance and financial investigations arms. Administering individual voluntary arrangements should also continue to deliver strong growth, with personal debt reaching record levels globally.

The impressive financial performance of the insolvency specialist, which more than doubled turnover and pre-tax profits this year, was partly organic but also a result of an aggressive acquisition policy. In a rapid growth market, the group expects to continue expanding.

The shares trade on a fairly racy forward price-to-earnings ratio of 21 times, not expensive for the sector but expensive when compared with the rest of the market. However, the good numbers are likely to lead to increased broker estimates for the company so most of the risk is to the upside. Buy.

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