Investment Column: BA is starting to look seriously cheap, buy

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The Independent Online


Our view: Buy

Share price: 196.4p (-4.4p)

British Airways is bucking and twisting through a particularly nasty patch of turbulence. Record annual losses of £531m, revealed last month, give some hint of the scale of transformation needed to drag the carrier into the viciously competitive modern age. Meanwhile, Europe's ongoing economic travails are weighing down on its airlines, even as the rest of the world starts to recover. And BA is still fighting with cabin staff over plans to cut jobs and trim conditions.

Willie Walsh, the chief executive, was his usual bullish self yesterday, branding the strikes a "failure" and stressing it is "business as usual" at BA despite the disruptions. The current wave of three five-day actions will finally end on Wednesday. Tony Woodley, the joint general secretary of the Unite union, has warned of another ballot as early as this week. Talks are at a stand-off. But now is still a good time to buy BA.

The main issues have been resolved with Unite, and BA is winning a war of attrition as fewer cabin crew participate in each strike. It is only a matter of time before the issues are resolved, and – even with the compromises already agreed with Unite – the company will be in a stronger position afterwards. There is also much room for improvement in BA's share price. By mid-March, it had climbed back within a whisker of its 257p price before the collapse of Lehman Brothers sent global stock markets into freefall in September 2008. Since then BA has done little but slide.

But regardless of the short-term industrial relations problems, BA has strong prospects. It has enough cash to handle the strikes, is on course to break even this year, and the enormous opportunities of tie-ups with Iberia and American Airlines have barely been factored in. Best of all, it continues to be a fantastically strong brand, even after the knocks and dents of the last nine months. BA is looking wonderfully cheap. Buy.

UBC Media

Our view: buy

Share price: 5.25p (UNCHANGED)

UBC Media Group has undergone a year of change after offloading its commercial division and shifting focus on to content production and developing interactive software for digital wireless markets. The company changed its focus "180 degrees", believing the value in media investment is "shifting from distribution platforms to content".

UBC is the UK's largest independent radio production company, making 15 per cent of the shows that BBC Radio outsourced last year. Another division, Lynx Content, provides video production for clients such as Guinness, Braun and Land-Rover. Software and interactive business revenues dropped slightly, but UBC hopes that recent tagging technology used by Absolute Radio could be extended to other clients. Revenues rose 40 per cent in the year to the end of March. And the operating loss more than halved to £277,000, with the company breaking even in the second half. UBC also re-instituted a dividend of 0.26p per share. The company is forging into the digital age with its launch of an iPhone application network for radio stations as well as its interesting investment in Audioboo, which was announced yesterday.

Few media stocks have a 5 per cent yield, and UBC looks well positioned for growth. Potential regulatory changes in the UK media sector could also help business, with the BBC possibly outsourcing more production. Buy.

Phoenix IT

Our view: buy

Share price: 234p (-5p)

The computer services group Phoenix IT posted what struck us as a pretty good set of full-year results yesterday. Underlying pre-tax profits grew more than 4 per cent, while the order book rose by 23 per cent, with the pace picking up as the recovery began to take root in the second half. We were especially pleased with the company's recognition of the importance of cloud computing – internet-based computing to you or me. Judging by the remarks in yesterday's statement, Phoenix is clearly alive to the opportunities in this fast growing area, something which should pay off handsomely as the market for internet-based services expands.

Happily for investors, the valuation is attractive. Phoenix trades on a forward earnings multiple of 7.5 times, according to Panmure Gordon, whose estimates happen to be ahead of consensus. That's a good reason to buy in itself, but the stock's apparent cheapness also raises the prospect of a bid. The wider sector has been buzzing with M&A activity over the past three years. Phoenix could be next. Buy.