Our view: Buy
Share price: 1150p (+90p)
Regular readers of this column will know we have been rather dismissive of the banking industry for some time. And not without good reason, considering what has happened to the sector over the past 12 months or so.
Share prices have been walloped as investors hardly bothered to distinguish between those banks surviving by their own efforts and those that all but failed without some form of help. We have sympathy with this approach, but think the time has come to sort the wheat from the chaff.
Standard Chartered, the bank that operates largely in Asia, Africa and the Middle East, yesterday reported record first-quarter income and profits, saying its capital and liquidity positions were strong. Investors can hardly ignore such a stout performance and should expect the market to start rewarding lenders that are emerging from the financial crisis with their reputations and, more importantly, their balance sheets and share registers intact.
We would now be buyers of Standard Chartered, believing it to be just about the best in its class. We share the finance director Richard Meddings's concerns that financial markets are still in a delicate state, but also accept his point that the bank is doing well in the strongest markets and is likely to avoid a serious kicking in the future.
The shares trade at a premium to the sector, but we reject the argument of those at Collins Stewart that now is the time to take profits. We do not really think it matters that the stock is pricey: it is still trading at about a third less than it did a year ago. Investors buying today are getting a stock whose quality is increasing. Buy.
Aberdeen Asset Management
Our view: Avoid
Share price: 132p (+1.75p)
You know things are not going terribly well when the first sentence under "operational highlights" in a company's half-year report is about further cost-cutting measures. Aberdeen Asset Management, like nearly all of its peers, has taken something of a beating in the past nine months or so as the financial markets they oil seized up. Its half-year profits were down 18 per cent, while assets under management, which the industry used to trumpet as the highlight in any results when things were going well, were down £11bn to £96.3bn.
Its chief executive, Martin Gilbert, was typically candid about the results, saying they were "disappointing" but that the prospects for the medium and longer term were good. His public relations people were keen to point out that Aberdeen's results were better than those of rival Schroders. Some reckon the financial markets are off their sick bed. We would agree, but they are still feeling groggy, which means we are generally still nervous about asset managers as a whole.
That said, we think Aberdeen is one of the stronger players in the industry and, as the sector consolidates, it will be an acquirer, rather than being gobbled up: Mr Gilbert says he is in the market for a fund of hedge funds firm.
The only problem is that there are other good longer-term bets too, including Schroders, and Aberdeen's shares trade at premium to the sector. Mr Gilbert says he prefers a conservatively priced share, and so do we. As the financial markets' health improves, and there may be stumbles on the way, Aberdeen may well perform better, but we would be tempted to keep clear until the numbers improve. Avoid.
Our view: Buy
Share price: 94p (+10.5p)
Farmers love a good recession: as people trade down from fancier edible alternatives, so their produce becomes increasingly popular. Of course, it is not only farmers who benefit from people generally being poorer. The distribution company NWF, which transports farmers' animal feeds, fuel and food around the country, is enjoying strong trading and yesterday forecast that its full-year results would be significantly ahead of expectations.
The group's shares rose by 12.6 per cent yesterday as the market finally realised the group was doing very well, despite what the company described as "tough trading conditions".
Yes, parts of the business are finding life a little tough – as national milk production falls, so its animal feeds business has found life a little difficult – but on the whole the company is thriving.
Before yesterday's update, NWF's shares had stuttered, despite the strong operational performance. Its chief executive, Richard Whiting, said the group was the victim of being a small company in a market that was shunning those with a market capitalisation of less than £100m. We would agree with him, but would like to think that the market has woken up to the fact that NWF is performing very well indeed.
Trading on 9.6 times earnings, we agree with those who argue that the stock looks undervalued, and though buyers have now missed yesterday's impressive jump, we still believe there is the potential to make a handsome profit from owning NWF shares. Buy.