Investment Column: Autonomy proves worthy of its lofty rating

Domino's Pizza; Games Workshop


Our view: Buy

Share price: 1558p (+90p)

Last year we argued that the despite another stellar set of results from Autonomy, investors should wait for signs of softening in the share price before jumping in.

The IT group, whose software allows clients to track emails, has been one of the best performers on the FTSE 100 in recent years, driven largely by the regulatory nature of its products. The shares, incidentally, have showed no let-up since we last looked at them.

But now there are concerns among analysts that the squeeze on many companies' procurement departments will slow the sales of Autonomy's latest products. Moreover, the stock's unchecked rise (it traded at just 158p five years ago) means that as well as being one of the best performers on the index, it is also one of the most expensive, trading on a prospective price-to-earnings ratio of nearly 30, way more than rivals such as Sage in the UK, and international groups, such as SAP. The lack of a dividend does nothing for the investment case, either.

However, despite these criticisms the group thunders on, and yesterday it issued a trading statement saying that it is on track to hit analysts' full-year estimates. Mike Lynch, chief executive, argued that Autonomy showed significant growth, increased customer penetration and new product development against an extremely tough general economic environment. It has also outperformed its peers.

Given the way the shares have performed, there is always the risk that investors are buying the stock at the top of the market. On the other hand punters should be encouraged to back winners. On an earnings-per-share basis, for example, Autonomy outperforms both the European and global software sectors according to house broker UBS.

The analysts at Panmure Gordon admitted yesterday to losing their bottle and going soft on Autonomy at the end of last year. And while we're on the mea culpas, we were perhaps guilty of this too. But we don't intend to make the same mistake twice. Time to get back into Autonomy. Buy.

Domino's Pizza

Our view: Buy

Share price: 304.65p (-4.7p)

There seems to be no lack of appetite for Domino's Pizza from customers in the UK and Republic of Ireland. Despite being up against buoyant sales last year, Domino's delivered tasty like-for-like growth of 8.6 per cent at 501 mature stores for the 13 weeks to 27 December. The company posted the same increase for the corresponding period in 2008. That's impressive growth by anyone's yardstick.

The strong final quarter helped Domino's to outperform its own internal like-for-like sales forecasts for the year and improve its margins. It also opened a record 55 stores in 2009, which was also more than anticipated.

But that's not all. Domino's has had an online presence for a decade but e-commerce sales jumped by 40.4 per cent for the year, although this was down from the stunning 73.7 per cent growth in 2008. All this means the pizza maker was able to say full-year 2009 profits will be "comfortably ahead of current City expectations".

Investors may want to chew over the fact that Domino's shares are still pricey and trade on a price-to-earnings multiple of 21.2 times full-year forecast earnings. Given that, we would not expect an explosive 2010 for its shares, but management's track record of delivering the goods – and pizza – during the recession means a slice of Domino's is recommended for long-term investment plans. Buy.

Games Workshop

Our view: Hold

Share price: 332.5p (+76.5p)

Games Workshop's chaos warriors continue to storm the stock market. Yesterday the company produced a trading update predicting that profits will be £5m better than City forecasts, an impressive performance by anyone's standards. The shares duly responded by shooting up 76.5p.

Games Workshop now looks to be through the first phase of its turn-around and can go on from here. It's kept tight control of costs, and continues to succeed by paying close attention to its customers, an oft-lampooned group who enjoy painting miniature soldiers and then staging wargames with them. We said hold at 309p in July and since then the shares have drifted badly, only rising above that level after yesterday's barnstorming trading update.

It's not all good news. There was a note of concern about recent sales in the trading update. And the company will need to ensure that it does not get complacent. But there is not too much sign of that and on 13.5 times forecast 2010 earnings, the shares, even at the new level, are not unfairly priced. We would continue to hold, although we would not put investors off from buying more.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
Life and Style
A monstrous idea? Body transplants might no longer be science fiction
Science An Italian neurosurgeon believes so - and it's not quite as implausible as it sounds, says Steve Connor
Sport
Demba Ba (right) celebrates after Besiktas win on penalties
footballThere was no happy return to the Ataturk Stadium, where the Reds famously won Champions League
Arts and Entertainment
Natural beauty: Aidan Turner stars in the new series of Poldark
arts + ents
News
Mia Freedman, editorial director of the Mamamia website, reads out a tweet she was sent.
arts + ents
News
people
Arts and Entertainment
The write stuff: masters of story-telling James Joyce, left, and Thomas Hardy
arts + ents...begging to differ, John Walsh can't even begin to number the ways
News
Image from a flyer at the CPAC event where Nigel Farage will be speaking
news
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Telesales / Marketing Executive - B2B - OTE £25,000

£17000 - £25000 per annum: Recruitment Genius: An opportunity to join this new...

SThree: Trainee Recruitment Consultant

£18000 - £21000 per annum + OTE £45,000: SThree: SThree Group have been well e...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Recruitment Genius: Business Control Manager

£36000 - £44000 per annum: Recruitment Genius: Encouraging more businesses to ...

Day In a Page

HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

Scientists hail daily pill that protects against HIV infection

Breakthrough in battle against global scourge – but will the NHS pay for it?
How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

Time to play God

Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

MacGyver returns, but with a difference

Handyman hero of classic 1980s TV series to be recast as a woman
Tunnel renaissance: Why cities are hiding roads down in the ground

Tunnel renaissance

Why cities are hiding roads underground
'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

Boys to men

The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
Crufts 2015: Should foreign dogs be allowed to compete?

Crufts 2015

Should foreign dogs be allowed to compete?
10 best projectors

How to make your home cinema more cinematic: 10 best projectors

Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

Manchester City vs Barcelona player ratings

Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

Monaco: the making of Wenger

Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

Chris Gayle: The West Indies' enigma

Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
In Ukraine a dark world of hybrid warfare and murky loyalties prevails

In Ukraine a dark world of hybrid warfare

This war in the shadows has been going on since the fall of Mr Yanukovych
'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

Homage or plagiarism?

'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
Broadchurch ends as damp squib not even David Tennant can revive

A damp squib not even David Tennant can revive

Broadchurch, Series 2 finale, review
A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

Inside the mansion of Germany's 'Bishop of Bling'

A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower