Investment Column: Believe the hype, buy Huntsworth shares
Tuesday 24 March 2009
Our view: Buy
Share price: 45p (+4.5p)
For many company bosses the script is very similar. Yes, we're coping well in the face of the recession. Yes, we're pleased with our performance and we're cautiously optimistic about the future. The shares? Far too oversold; investors can get them for a song.
All pretty tedious stuff. Lord Chadlington, the chief executive of the multi-faceted public relations outfit Huntsworth, starts off in pretty much the same vein about being worried at the end of last year but, in fact, with 78 per cent of expected revenues already booked for 2009, the group is nervously upbeat about the rest of the year. The stock is, of course, very cheap.
It is very difficult to argue, however, when a chief executive puts his own money where his mouth is. Not only has the company announced the resumption of a share buyback scheme, which will aim to buy £5m of the shares, but Lord Chadlington has also forgone his own bonus in favour of deferred stock that will vest from 2011. The shares were up 11 per cent yesterday as investors jumped into the stock, evidently not put off by the 107 per cent rise in the last three months. The company announced its preliminary results yesterday, showing a pre-tax profit of £20.1m, versus £10.8m last year.
All public relations firms claim to be resilient (and you would hope that they would be good at getting the claim to stick), arguing that now, more than ever, clients need good advice. Investors may take the view that, as the recession deepens, companies seek to cut costs as much as possible and the retainer paid to the PR firm might be better saved.
Lord Chadlington argues that it is Huntsworth's presence in various countries that sets it apart. Analysts at its house broker, Numis, predictably reckon the stock is a buy, saying that, trading on a 2009 price-earnings ratio of five times, "our buy recommendation is underpinned by the group's functional and geographic diversity, and digital activity". We are cautious on the PR sector, but then actions do speak louder than words. Buy.
Ceres Power Holdings
Our view: Tentative buy
Share price: 101.25p (+6.25p)
There are few who would disagree with the notion that green power is a good idea, but for investors there has often been little incentive to back heavy spending groups that are long on promises but all too often short on returns.
Ceres Power, the group that is developing fuel cells it ultimately hopes will be used in people's homes, reckons it is different, and that it will eventually prove to be a winner for punters. Those who bought the stock three months ago, and who have seen their investment rise by 65 per cent, would certainly agree.
The company has deals with both British Gas and Calor under which it receives milestone payments for developing the technology that these groups hope they will be able to sell directly to consumers in a few years' time. The first £2m payment from British Gas will come in the summer; the group has enough cash, £24.4m, to see the deal through to the end of the current agreement; and it has found and leased a plant to make its fuel cells on an industrial scale. "This is the breakthrough the company needs to be a global green power producer," says its chief executive, Peter Bance.
A punt on Ceres is a bet on its ability to deliver on its promises. A widened loss of £3.3m will not be welcomed, but investors should take heart from the deals it has in place, particularly with British Gas. As with any small technology stock, buying should always be considered a risky business, but the possible rewards on offer with Ceres are difficult to ignore. Tentative buy.
Our view: Avoid
Share price: 56.5p (+1.5p)
The problem for Xaar is China. The inkjet printer producer said that while it has already cut 20 per cent of costs, and that it was profitable last year, it is losing market share in its biggest market.
The company, which yesterday announced that 2008 pre-tax profits were £4.4m, down from £7.3m last year, is doing its best to save money as it feels the strain of the recession. It also announced yesterday that over the next two years it will move production to the UK from Sweden.
While that might have a long-term benefit for shareholders and will be a welcome move for British jobs, investors cannot ignore that the group will suffer the longer the recession continues.
Analysts at Seymour Pierce would still buy the shares, even though they trade ahead of the watchers' January price target. We are altogether more cautious. While generally applauding the group's reaction to the recession, we do think buyers will not do well out of Xaar for the foreseeable future. Avoid.
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