Investment Column: Bloomsbury's shares look fairly valued
Renold; Harvey Nash
Wednesday 01 June 2011
Our view: Hold
Share price: 130.9p (+1.25p)
The headline figures in Bloomsbury's results at the end of last week were far from inspiring.
Pre-tax profits in the 14 months to the end of February – the longer than usual period was down to a change in the company's year-end – fell to £4.2m, down from £7.1m in the year to the end of December 2009.
The publisher pinned the weakness on various one-off items. Adjusting for those costs, pre-tax profits were higher, and flat in comparison to the preceding year. But the real highlight of the update was the news that sales of electronic books had rocketed, so much so that Bloomsbury made more with its digital sales in the first three months of this year than it did in the whole of 2009.
The group said that while the US continued to lead the way when it came to e-books, the format was also making inroads in the UK, which saw a surge in the final quarter of last year. This trend should accelerate, as devices such as Amazon's Kindle, which was recently launched in Germany, lure more readers.
Of course, the rise of e-books does present challenges for publishers. The most obvious will be the need for companies such as Bloomsbury to be agile enough to deal with the globalisation of the book trade as e-readers spread around the world.
It was, therefore, encouraging to hear that the company had already made changes to deal with such shifts. No doubt, there will be surprises along the way. But this reorganisation should leave Bloomsbury well placed to adapt to any twists and turns along the way.
So, despite the less than cheery headline figures, the business appears to be on the right track with its strategy. But what about the shares?
Altium puts the stock on more than 14 times forward earnings which, even when considered in light of the 3.8 per cent forecast yield, looks fairly full. Bloomsbury does not deserve to be sold, but the valuation makes us wary of buying at this point.
Our view: Buy
Share price: 36.75p (-3.25p)
Renold's full-year figures were slightly below the estimates pencilled in by FinnCap analysts at the time of the Manchester-based engineer's last update, which could have been part of the reason why the stock fell last night.
However, we think a more plausible trigger is the rally since the slump seen in early March. Indeed, even after the pullback, Renold remains well above the levels seen just two months ago.
Moreover, the figures were hardly horrific. Underlying revenues were up 19 per cent in the year to the end of March, while the company's underlying order intake was up by 23 per cent. The order book was up 13 per cent over the year.
Renold, which supplies chains, gears and couplings to various sectors, also managed to reduce its pension deficit, and generated cash over the second half of the year. The share price fall, then, is likely to be the result of little more than short-term profit-taking. And the fact that the stock trades on under 10 times forward earnings points to the promise of further gains once the effects of the pullback have worn off.
Our view: Buy
Share price: 88p (+2.75p)
Harvey Nash continued its run of strong updates yesterday, with the recruitment group following up April's strong full-year results with news that trading over the first-quarter had surpassed expectations.
With both revenue and gross profit advancing by more than 20 per cent, the group was particularly pleased with the performance in mainland Europe, while the US also proved strong. On the downside, the UK was less impressive and, given that these shores provide roughly 40 per cent of net fees, remains a drag.
The recent share performance should also give investors pause for thought. Harvey Nash has rocketed by more than 150 per cent since the start of 2010 – great for those who got in early, but there are questions about whether it can keep up the pace.
Those who prefer to err on the side of caution may want to wait until further signs emerge that it can build on its performance, but Harvey Nash still seems likely to go only one way, even if the move may not be as dramatic as has been seen before.
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