Investment Columm: Gold miners like Hochschild are clear buys

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The Independent Online


Our view: buy

Share price: 427.6p (+9.6p)

The miners have been the belles of investment ball so far this year, as the return to growth of the worldwide economy has strengthened, especially in the key Chinese market, and commodity prices have jumped as a result.

FTSE 250-listed Hochschild Mining, a Peru-based gold and silver producer, has been on the rise with the rest, and its shares have put on an impressive 45 per cent plus in the last six months, even if it may have underperformed some of the other miners over the last year.

But as investors are always told by the suits at investment firms, past performance is not an indicator of what may happen in the future. We agree that this is sage advice, but in Hochschild's case, there are good reasons for ignoring it.

Gold and silver prices are rocketing thanks to investors getting very nervous that the recovery in the western hemisphere is built on not much more than hot air (or economically speaking, what the Bank of England calls quantitative easing and everyone else calls printing money). Gold in particular has jumped to all-time highs on the spot market, with the futures market also moving ahead, which is all great news for producers of the shiny stuff.

On a 2011 multiple of 31.8 times forecast earnings, the shares ain't cheap by any means, and the dividend yield of 0.69 per cent is unimpressive at best, downright stingey at worst.

Indeed, if you're looking for the best value in the world of gold and silver mining, we'd have a closer look at African Barrick, the FTSE new boys, or Petropavlovsk, before we bought into Hochschild Mining again.

Nonetheless, being confident about the potential of overall capital appreciation, investors could cheerfully buy up all the large-cap gold miners without worrying a jot. Gold and silver are on the up, and miners like Hochschild serve as little more than a proxy to the prevailing market prices. So, really, this is the original no-brainer. Buy.


Our view: buy

Share price: 141p (+4p)

As this column has noted, classrooms are changing with the advance of technology, and one of the companies driving that change is RM. The group, which has been providing computer hardware and software to schools for 30 years, has had a turbulent year, predominantly down to the Government's plans to cut education spending. But there has been some positive news since August. RM has won a string of contracts and yesterday said its financial year has been consistent with market expectations as a whole.

Summer is the busiest operational period for the group, as it is during the holidays that RM upgrades school computers. Terry Sweeney, chief executive, said that cutbacks or not, this summer RM will have commissioned more new schools, processed more exam scripts, and shipped more classroom resources than ever before.

Previously Shore Capital has noted that the current share price is discounting a "severe disruption" to RM's future growth prospects and a disappointing end to the current financial year. But it believes both are unlikely.

We do too. Revenues are rising and the company has diversified its business as well as looking to more exotic climes to make sure the UK cutbacks are not terminal. It has lifted the dividend every year since 1994 and is valued at 8 times estimated 2011 earnings against a five-year historic average of 15.1 times. Buy.

Clipper Windpower

Our view: sell

Share price: 31.5p (-13.25p)

We thought Clipper might be worth a speculative punt when we last looked at it six months ago, with the appointment of a new chief executive, who just happened to have been director of corporate strategy at UTC, which is Clipper's biggest shareholder. It seems he has been unable to work the magic that the company requires and yesterday it warned that without fresh financing, it might not be able to continue as a going concern.

Clipper's main claim to fame in the UK is that it is building the biggest offshore wind turbine here. As such it has consumed millions of pounds in government grants to little effect. Sales of turbines have fallen sharply, as the downturn has eaten into the appetite for investing in green power, and that has hurt. So has the company's inability to supply warranties on what it sells, although it is hoping to rectify this. That is, if the company can find a rescuer to keep it going.

Six months ago we said Clipper was only for those seeking something racy, and risky. But it still wasn't one of our better calls. There's not really any reason to stick around in these shares in the hope that UTC will ride to the rescue.