Investment Column: Autonomy is essential, and it's attractive

Our view: Buy

Share price: 808.5p (-9.5p)

There are lots of reasons why investors should buy shares in Autonomy.

The software company's third-quarter numbers, published yesterday, showed a whacking great increase in pre-tax profits, to $47.8m compared with $18.2m for the same period last year. By offering services that cover clients' needs, as far as regulators are concerned, Autonomy's products are must have, rather than something companies can choose to buy. And, perhaps most importantly, in recent weeks the stock is down by nearly 15 per cent, making it more attractive than it used to be. The fact the group is on Goldman Sach's "conviction buy list" will further convince some that it is a winner.

However, there are better bargains elsewhere. Watchers at Canaccord Adams, whose price target for the group is 1,203p, say the company "is trading on high multiples compared to its peers. Growth expectations are high, making shares highly sensitive to any disappointment in growth prospects."

Investors should bear in mind, however, that a safe punt in these markets is no bad thing, and, anyway, its chief executive, Michael Lynch, argues that with organic growth of 38 per cent on a forward price earnings ratio of 16 times, the group is hardly expensive.

We tend to agree. The company is likely to benefit from the host of litigation and regulation that will undoubtedly be sparked by the financial crisis. Investors need some safe havens, especially with the economy heading towards a recession, which will mean that other areas of punters' portfolios will take a battering. Buy.

Experian

Our view: Cautious hold

Share price: 300.5p (-29.5p)

For investors, credit checking group Experian is an enigma: the shares are cheap, the results are good, but the stock keeps heading south. With fewer people applying for mortgages and loans, the consumer credit checking part of the business is under a bit of pressure. There are more strings to the Experian bow, however, with growth rising from 1 per cent to 5 per cent across the whole company, compared to this time last year. And Experian has expanded in every one of the last five quarters.

The shares are cheap compared to others in the sector, which should encourage investors. House broker UBS says that on a price earnings ratio "of about nine times compared to Equifax on about 10 times", the stock trades at an attractive discount.

Despite all this good news, the share price dropped a further 9 per cent yesterday. There was a cautionary outlook note in the trading update, but that is now standard in nearly all market updates. There was also other disappointing news: the group has failed to sell its price comparison website Pricegrabber, but that is frankly a sideshow.

Paul Brooks, the finance director, argues that the shares have not performed because the group is "relatively new", having listed two years ago, and investors are reacting badly to anything other than wholly positive news. That may be true: on paper Experian may be a solid bet. The problem is that the market is being driven by sentiment rather than on anything substantive.

The company may be a good bet for those looking for a group to give them a lift when more normal market conditions return, but a genuine recovery could be some way off. Cautious hold.

Sportingbet

Our view: Buy

Share price: 29p (+2p)

As the UK's banks have less than admirably shown us in the past few weeks, gambling can have disastrous effects, especially when you have no idea what you are betting on. This has not prevented us lesser mortals from having a flutter, judging by gaming group Sportingbet's full-year numbers, published yesterday. Operating profits were up by a more than decent £17.8m to £22.7m. The chief executive, Andy McIver, says that pre-tax profits will be in black by this time next year.

The online gaming firms have had a rough time of it in recent years after the US banned them in 2006. While regulation remains the biggest threat to the sector, says Mr McIver, the industry is "recession hardy": a flutter denied is harder to stomach than a big-ticket spending, he argues.

The advantage of Sportingbet, say the watchers, is that it is cheap. "Sportingbet stands on a 2009 price earnings ratio of 5.6 times, falling to 5.1 times in 2010, or an enterprise value to Ebitda of 2.7 times in 2009 falling to 2.5 times in 2010. This compares to the peer group, which on average trades on a 50 per cent premium to Sportingbet." With that in mind, investors had better take a punt. Buy.

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