Investment Column: As a General rule – hold inexpensive L&G

Rexam; WS Atkins

Our view: Hold

Share price: 76.35p (+2p)

Some of the shine has come off L&G in recent years – and some of the charm too, sadly.

But with the entire life insurance industry suddenly showing a bit of momentum, particularly in the fourth quarter, is it worth adding to a Legal holding? Maybe. L&G hasn't quite produced the expectations-busting surge of, say, an Aviva but the company argues its business mix is more stable than most, showing less of a downturn in sales when times were tougher, and therefore less of an upside now.

On the year, sales fell just 3 per cent (less than some rivals) to £1.39bn, bang in line with the consensus forecast. Within that number, there was a pick up in the fourth quarter and some very good results from the fund management arm.

Of more importance to investors, however, was the fact that L&G doubled its cash generation to more than £650m, well above the target of £450m. It has done this in part by keeping a tight hold on costs, in part by focusing on selling more "modern" savings products such as unit trusts at the expense of old fashioned, capital intensive life insurance plans. At a time when capital is scarce, that will be very welcome to L&G's investors, who last year faced up to the first dividend cut the company has made in living memory.

The shares have been soft recently, although they are still well ahead of the 62.15p at which we advised a buy at the beginning of August. However, even at that level they still look cheap, trading at just 76 per cent of the estimated embedded value of the business and just 9 times forecast 2010 earnings.

Even after that embarrassing dividend cut, the prospective yield is worth having at 4.9 per cent, and with L&G building up capital, it could improve soon. All that said, L&G does not offer the potential for growth of rivals such as Aviva or Prudential which are more diversified with better geographic reach. But with a positive outlook for 2010, we'd continue to hold the shares.


Our view: Hold

Share price: 277p (-5p)

Some positive signs yesterday from Rexam, the drinks can maker, which raised £334m in a rights issue in August to ease pressure on its investment grade status. This helped it cut debt to £1.8bn by 31 December and was by no means the only good news in the full-year results yesterday, despite a pre-tax loss of £59m, largely thanks to one-offs. Rexam – which also has plastic packaging, healthcare, personal care and closures (tops for bottles) divisions – touted a strong improvement in cash flow to £290m at the year end, compared with a £128m outflow in 2008. It has also proposed a final 2009 final dividend of 8p after ditching the interim payout.

Shares in Rexam trade on a relatively modest multiple of 10.2 times forecast 2010 earnings. The company's new chief executive is making the right noises on costs and cashflow, but investors should note some less buoyant comments in the statement too. Of these, the core beverage business suffered weaker than expected sales volumes in Europe, as customers shunned speciality cans during the recession. While both Europe and the US showed signs of improvement in the second half, Rexam cited "ongoing uncertainty" concerning those speciality cans and a dire performance in Russia. We believe Rexam is over the worst in most of its global markets, but are tempted to wait until 2011 to crack open the investment can. Hold for now.

WS Atkins

Our view: Strong buy

Share price: 571.5p (+9p)

An encouraging management statement from WS Atkins. The engineering consultancy says it has performed in line with expectations over the last five months' trading, despite "turbulent" market conditions.

The Design and Engineering business has seen the biggest turn-around, cutting back on water-related activities after Ofwat's stringent determination for the next five-year pricing period, and boosting resources to the nuclear and renewables divisions. And, despite the dire position in Middle Eastern markets such as Dubai, WS Atkins is sticking to its guns, extending its geographic reach and skills.

Despite the concerns about both the Middle East and the UK public sector, WS Atkins is sufficiently diversified to remain attractive on a purely business case. But the big draw of the stock is its valuation. The shares trade on a multiple of next year's forecasts of just 8.1 times falling to 7.7 times, according to Panmure Gordon. That is well below the sector average. And the group's enterprise value to earnings ratio is 2.9 times, the lowest in the consulting sector. Add in the 5 per cent dividend yield, and WS Atkins starts to look very attractive. The shares have fallen over the past few weeks largely due to concerns about the Middle East but they are still ahead of where they were when we said buy at 557p in June. But they still offer excellent value. Atkins is a strong buy.

Start your day with The Independent, sign up for daily news emails
Life and Style
love + sex
Arts and Entertainment
Victoria Wood, Kayvan Novak, Alexa Chung, Chris Moyles
tvReview: No soggy bottoms, but plenty of other baking disasters on The Great Comic Relief Bake Off
Ashley Young celebrates the winner for Manchester United against Newcastle
footballNewcastle 0 Man United 1: Last minute strike seals precious victory
Life and Style
Tikka Masala has been overtaken by Jalfrezi as the nation's most popular curry
food + drink
Arts and Entertainment
Seth Rogan is one of America’s most famous pot smokers
filmAmy Pascal resigned after her personal emails were leaked following a cyber-attack sparked by the actor's film The Interview
Benjamin Netanyahu and his cartoon bomb – the Israeli PM shows his ‘evidence’
ebooksA special investigation by Andy McSmith
Arts and Entertainment
80s trailblazer: comedian Tracey Ullman
Life and Style
A statue of the Flemish geographer Gerard Kremer, Geradus Mercator (1512 - 1594) which was unveiled at the Geographical Congree at Anvers. He was the first person to use the word atlas to describe a book of maps.
techThe 16th century cartographer created the atlas
Arts and Entertainment
Stephen Tompkinson is back as DCI Banks
tvReview: Episode one of the new series played it safe, but at least this drama has a winning formula
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Graduate Application Support Analyst

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Reach Volunteering: External Finance Trustee Needed!

Voluntary post, reasonable expenses reimbursed: Reach Volunteering: Would you ...

Christine McCleave: FP&A Analyst

£36,000 - £40,000: Christine McCleave: Are you looking for a new opportunity a...

Recruitment Genius: Sales Executive - OTE £40,000

£15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...

Day In a Page

War with Isis: Iraq's government fights to win back Tikrit from militants - but then what?

Baghdad fights to win back Tikrit from Isis – but then what?

Patrick Cockburn reports from Kirkuk on a conflict which sectarianism has made intractable
Living with Alzheimer's: What is it really like to be diagnosed with early-onset dementia?

What is it like to live with Alzheimer's?

Depicting early-onset Alzheimer's, the film 'Still Alice' had a profound effect on Joy Watson, who lives with the illness. She tells Kate Hilpern how she's coped with the diagnosis
The Internet of Things: Meet the British salesman who gave real-world items a virtual life

Setting in motion the Internet of Things

British salesman Kevin Ashton gave real-world items a virtual life
Election 2015: Latest polling reveals Tories and Labour on course to win the same number of seats - with the SNP holding the balance of power

Election 2015: A dead heat between Mr Bean and Dick Dastardly!

Lord Ashcroft reveals latest polling – and which character voters associate with each leader
Audiences queue up for 'true stories told live' as cult competition The Moth goes global

Cult competition The Moth goes global

The non-profit 'slam storytelling' competition was founded in 1997 by the novelist George Dawes Green and has seen Malcolm Gladwell, Salman Rushdie and Molly Ringwald all take their turn at the mic
Pakistani women come out fighting: A hard-hitting play focuses on female Muslim boxers

Pakistani women come out fighting

Hard-hitting new play 'No Guts, No Heart, No Glory' focuses on female Muslim boxers
Leonora Carrington transcended her stolid background to become an avant garde star

Surreal deal: Leonora Carrington

The artist transcended her stolid background to become an avant garde star
LGBT History Month: Pupils discuss topics from Sappho to same-sex marriage

Education: LGBT History Month

Pupils have been discussing topics from Sappho to same-sex marriage
11 best gel eyeliners

Go bold this season: 11 best gel eyeliners

Use an ink pot eyeliner to go bold on the eyes with this season's feline flicked winged liner
Cricket World Cup 2015: Tournament runs riot to make the event more hit than miss...

Cricket World Cup runs riot to make the event more hit than miss...

The tournament has reached its halfway mark and scores of 300 and amazing catches abound. One thing never changes, though – everyone loves beating England
Katarina Johnson-Thompson: Heptathlete ready to jump at first major title

Katarina Johnson-Thompson: Ready to jump at first major title

After her 2014 was ruined by injury, 21-year-old Briton is leading pentathlete going into this week’s European Indoors. Now she intends to turn form into gold
Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

Climate change key in Syrian conflict

And it will trigger more war in future
How I outwitted the Gestapo

How I outwitted the Gestapo

My life as a Jew in wartime Berlin
The nation's favourite animal revealed

The nation's favourite animal revealed

Women like cuddly creatures whilst men like creepy-crawlies
Is this the way to get young people to vote?

Getting young people to vote

From #VOTESELFISH to Bite the Ballot