Investment Column: Barratt could take a beating this year
Moneysupermarket.com; N Brown
Thursday 13 January 2011
Our view: Sell
Share price: 92.9p (-2p)
When we looked at Barratt Developments in June, we came to the view that house builders were risky, not because of the valuations – trading at discounts to their asset values, the shares looked cheap – but because sector sentiment was likely to turn sour as the year progressed. The fear meant that we adopted a bearish stance when most City scribblers were crowing about the raft of buying opportunities. Just over six months on, Barratt is now slightly lower than it was back in June. We bring this up not to toot our own horn, but because similar factors continue to cloud the investment case. If anything, things have gone from bad to worse.
Despite well-meaning political soundbites, the mortgage famine persists, magnifying housing woes up and down these isles. But that is only half the story. This year, in addition to facing a lack of access to credit, consumers must also contend with higher taxes and spending cuts. You do not need to be a genius – or a highly paid City analyst – to work out that these factors will continue to bear down on the housing market, thus limiting gains in housing-sector share prices.
To its credit, Barratt was candid when it issued its trading statement last night, warning that mortgage lending remains at unusually low levels and that this will hold the sector back. Admittedly, we opted to hold rival Persimmon earlier this week, but its gearing level is now down to just 5 per cent and it pays a dividend. Barratt has much more debt – gearing is nearer 20 per cent and there is no dividend. Trading on just 0.4 times tangible net-asset values, the shares are cheap. But we remain wary of buying.
Make no mistake, long term, this country faces a massive housing deficit, which should drive business for the likes for Barratt. But that is in the long term. The short-to-medium-term picture is less inspiring. Keep selling.
Our view: Sell
Share price: 88.75p (+8.4p)
Moneysupermarket is one of the price-comparison websites without the benefits of Aleksandr Orlov (the meerkat). In fact, its ads, featuring tubby comic Omid Djalili, are arguably only the third-best behind the fat opera singer of Go Compare but ahead of Confused.com's rubbish (and irritating) blue-liveried cartoon characters.
Why does that matter? Well, ads are hugely important to these sites that charge a pretty penny in commission for companies to be compared (and won't save you as much money as an hour or so's legwork because companies such as Aviva and Direct Line don't use them).
Yesterday's trading statement was reasonably upbeat. The ads might be second-rate but they're working well enough, with £149m of revenues likely for the full year and adjusted earnings at the "upper end" of market expectations at around £41m, up 13 per cent and 32 per cent respectively.
Really, all these companies are straightforward plays on who has the best branding and Moneysupermarket is either in third or second place on that front. The shares have been run up quite strongly recently and trade on 14 times 2011 forecast earnings. Moneysupermarket would look tasty if the personal-loan market took off, but people are wary about borrowing right now. So we wouldn't be shopping with the Moneysupermarket for an investment. Sell.
Our view: Buy
Share price: 307.5p (-3.2p)
For N Brown, the home-shopping group specialising in plus-size clothing, the weather had a mixed impact.
N Brown, whose brands include Simply Be, Figleaves and Jacamo, is likely to have benefited from consumers staying at home to do their Christmas shopping and, indeed, it said its trading was "encouraging" from late October to mid-December.
However, the snow eventually hit the group as shoppers fretted about deliveries. And it was blamed for N Brown yesterday saying it has been left with a backlog of mail to clear, leading to a delay in its dispatching of catalogues and statements.
Still, it expects to recover some of these sales, and overall group revenues rose by 4.6 per cent for the 19 weeks to 8 January, boosted by soaring online trade. Further good news for investors is that, despite a sharp rise in its shares over the past year, N Brown still trades at a slight discount to the retail sector on just 11.3 times forecast earnings. It is also forecast to make nearly £100m of pre-tax profit this year. Buy.
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