Applying a little science makes Taylor & Francis look good value

Peacock's display makes it worth a flutter; Gresham Computing now too costly after good run

There is a big black cloud hanging over Taylor & Francis, the publisher of academic and scientific journals in the shape of the Office of Fair Trading. An OFT statement earlier this month that the market for scientific, technical and medical journals "may not be working well" put the skids under Taylor & Francis's share price. The OFT noted concerns that the market was seeing price increases above inflation and the bundling of journals together to increase barriers to entry.

Though the OFT stopped short of a full investigation it said it wanted to see signs of price restraint by commercial publishers.

At first glance this look grim for Taylor & Francis, which publishers journals such asPhilosophical Magazine and Crystallography Review.

But it may not be that bad. Analysts say that Taylor & Francis has been one of the "good boys" of the sector and has accompanied price rises with increases in pagination or frequency of publication. They also note that it is unclear how the OFT could regulate a dollar-denominated market that is genuinely global. Taking all this into account there is a case for viewing the current share price weakness as a buying opportunity.

Yesterday's half-year results were certainly as strong as usual from this well managed company. Pre-tax profits jumped to £9.4m from £4m the year before, though the figures were flattered by a £3m exchange rate benefit.

The journals division saw turnover rise 11 per cent with 24 new titles expected this year and 20 more in 2003. The books division also did well, helped by a new edition of the best-selling textbook Molecular Biology of the Cell. Current trading is in line with expectations, the company says, despite a softer books market in the US.

And then there are the deal prospects. Taylor & Francis has already tabled a £300m bid for Blackwell, the feud-ridden family publishing group which is considering its future. Another possibility is Kluwer Academic Publishing which would command a similar price tag. Both would be transforming deals like Routledge, the first acquisition Taylor & Francis made as a public company four years ago.

On Numis Securities' full-year forecast of £32.5m the shares – down 5p at 460p – trade on a forward price-earnings ratio of 17. This is cheap for a company which has regularly traded on a multiple of 25-plus. Good value.

Peacock's display makes it worth a flutter

Peacock Group has had its feathers seriously ruffled of late. Shares in the discount clothing retailer flew sharply south last week on fears that it would be on the losing end of Woolworths' attempt to shore up its margins by renegotiating its supply contract with Peacock.

After some much-needed preening yesterday, Peacock appeared to convince the market that better control over how Woolworths sold its clothes would compensate for any margin loss. This helped the stock to recover a bit, but even at 71p, up 2.5p, it remains well off its 163p flotation price of December 1999.

In a trading statement, Peacock crowed that it was confident of meeting market expectations of a pre-tax profit of £24m for the full year. However, with underlying sales in the year to date still looking dull, down 3.9 per cent on summer 2001, analysts are less confident.

Although Peacock competes in what has been the strongest area of the high street in recent years, competition at the discount end is growing. Onslaughts are coming thick and fast from the likes of Asda's George, Associated British Food's Primark and even Tesco's new Cherokee clothing range. While Peacock retaliated in July by expanding its share of the sector with the acquisition of Bon Marché, analysts anticipate further pressure on the group's top line – even if it can double its estate to 1,200 shops.

The strength of fashion retailers such as New Look, French Connection and Hennes & Mauritz has prompted Peacock to rethink its own dowdy offerings. With basic fleeces no longer proving popular, the group is expanding its ranges of trendy looks such as suedette trousers, crochet tops and all things lacy in an evolution of summer's key gypsy look.

On the plus side, trouser suits for £25 and embroidered trousers for £12 should help the group withstand the inevitable slowdown in consumer spending. Margins also looked healthy after Peacock kept a tight eye on stock levels in what was a difficult summer for retailers weatherwise.

At the bargain basement p/e ratio of just 4.5 times the shares, underpinned by a yield of 6.5 per cent, it looks worth a punt – although investors may prefer Peacock's rival, Matalan.

Gresham Computing now too costly after good run

The software company Gresham Computing finally looks to be getting its house in order after a turbulent period of management change and volatile performance. Admittedly, market conditions remain tough, but a new software product aimed at the banking sector has brightened up the company's prospects considerably.

While Gresham has not yet sold any of that new software it is confident its partner, the telecoms group Cable & Wireless, will do a good job of getting banks signed up.

Future prospects aside, Gresham's financials for the six months to 30 June didn't make particularly pleasant reading. Though pre-tax profits jumped to £2.7m from £1.7m this was due to a £4.9m gain on the sale of its remaining stake in SIM, a software testing company.

Operating losses rose to £2.3m from losses of £835,000 a year before on sales of £6.2m down from £13m, of which £7.8m was from continuing operations.

At least the company has £5.2m of cash – estimated to be enough to finance its plans – and the company's broker, KBC Peel Hunt, is predicting a profit of about £1m in 2003 compared with an operating loss of about £4m this year. The fly in the ointment seems that the vast majority of software firms are having a torrid time as commercial clients rein in their spending. While Gresham thinks its banking software should be an exception, as it will help banks to cut costs, the banks may not be convinced.

Shares in Gresham, up a penny at 76p, have already doubled in the past six months. After that run, there is no need to rush in. Avoid.