Investment Column: Aberdeen may prove a good asset – when things improve

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The Independent Online

Our view: Cautious hold

Share price: 88p (-2p)

"I never look at the share price," admits Aberdeen Asset Management's chief executive, Martin Gilbert. And a good job it is too. The shares are down more than 45 per cent in the past year and fell a further 2.2 per cent in trading yesterday after the group announced its full-year results.

If Mr Gilbert had looked yesterday, he may have been more than a little disappointed, especially as the figures were impressive. In a period when competitors have reported falling assets under management (AUM) and profits, Aberdeen's pre-tax profits were up marginally to £95.1m, while AUM soared to £111.1bn from £95.3bn last year.

Despite the good results, Mr Gilbert says the trading environment is getting tougher, with the company very keen yesterday to stress its cost-cutting activities, which will include trimming fat in data services and newspaper subscriptions, as well as an unspecified number of jobs. As with any group, Aberdeen thinks it is well set to weather the recession, and, because of its conservative methods, its position as one of Asia's leading players and the cost-cutting spree, it will emerge from the downturn in rude health.

No doubt all of that is true, but shareholders should not forget the recent performance of the stock. Despite the company's safety-first approach, investors are still looking to get out.

Analysts at Evolution advise that clients sell the stock: "At more than eight times December 2009 enterprise value to Ebitda [Aberdeen] is at a 50 per cent premium to the peer group, which is unjustified." but Numis reckons the group is a nailed-on buy, pointing to its cost savings and "institutional client bias."

Aberdeen is a well-run asset manager and its tendency for conservatism in these dreadful markets should not be overlooked. As and when things improve, the group may well get a bounce. The problem is the market is not rewarding Aberdeen for these things at the moment and it is still a pricey stock, which combined gives investors reason enough to be very careful. Cautious hold.

Victrex

Our view: Sell

Share price: 371.5p (-144p)

Companies updating the market on what they expect to happen in the next 12 months beware. If the statement is cautionary, organisations can expect to see a share-price dip. If, however, a group says that full-year sales volumes will not reach expected levels and brings forward the date of the announcement because of deteriorating markets, investors tend to get spooked.

The latter is what Victrex, which produces polymers for various industrial uses, did yesterday, and saw a 28 per cent fall in its share price. The company said that while current trading was going well, "we consider it unlikely that sales in the remaining months will grow sufficiently for us to meet expected sales volume for the year to 30 September 2009". With this in mind, the market ignored the fact the group said its cash position is strong and the balance sheet is in good order.

The supportive case was left to the analysts. Those at WH Ireland, who cut Victrex's share-price target from 850p to 575p argued "The reduction in earnings per share is severe: -35 per cent in 2009 and -31 per cent in 2010. But the business continues to generate copious free cash and it will be well placed for eventual recovery."

Given yesterday's announcement, getting out of the group can be the only sensible course of action. Sell.

Anite

Our view: Buy

Share price: 25p (+1.5p)

The best indication an investor can get about the value of a company's shares has nothing to do with what analysts say about price-earnings ratios or enterprise value to Ebitda. Instead, no group would announce a £20m share buy-back, which is what the management of the software group Anite did yesterday, if its board thought the stock was expensive.

Anite also announced interim results showing pre-tax profits at £4.4m, up from £2.9m in the same period last year. Operationally, the group is buoyant with its testing systems for mobile phone handsets expected to receive a boost when 4G devices get put through their paces in the next few years. The other side of the group, travel booking software, is doing well and benefiting from a deal it has with the German operator Tui.

Watchers at Canaccord Adams confirm that, trading at 1.9 times the current year enterprise value to Ebitda multiple, the shares are undervalued and that clients should buy. We tend to agree. The stock is now laughably cheap and punters would be taking a measured risk by buying now. Buy.

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