Investment Column: Booker's success story has not ended yet

Prezzo; FFastfill
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The Independent Online

Our view: Buy

Share price: 29p (+1.75p)

If you used Booker's share price as your one economic indicator, you would think that we were all in clover.

The cash and carry operator, which listed on the Alternative Investment Market in 2007, has developed something of a reputation for ignoring the consensus and ploughing its own furrow. For example, when the management team took charge of what can only be described as a basket case in 2005, they immediately decided to reduce the group's debt, just at a time when executives were being encouraged to leverage themselves up to the hilt.

And boy, is it now paying off. While the graph of most companies' share prices looks as though a hippo has sat on it, Booker's stock has been on the rise, up 18.5 per cent in the last quarter alone. News in the company's fourth- quarter trading update, which said that total sales were up 6.4 per cent, led to another small jump yesterday.

The group now has little debt, is cash generative, and is expanding its offering as a provider to institutions such as the Prison Service. It is also moving into the Indian market, with a cash and carry store set to open in Mumbai.

For investors who feel that they may have missed the boat, fear not. Despite the rises of the last year, the stock trades on an undemanding 5.8 times enterprise value to Ebitda. The group is also set for a move to the main list later this year, which will not only help liquidity but, with a likely place on the FTSE 250, will also attract a number of funds that are prevented from buying small-cap stocks.

Many of the analysts have a conviction buy list; we do not. If we did, Booker would be on it. It is in the right sector for growth in the midst of the economic woe, and has enough momentum behind it to do wonders for the share price. Buy.

Prezzo

Our view: Cautious hold

Share price: 25.25p (+1.75p)

Pizza restaurants might not seem to be the most sensible of industries to put your money in during a recession, and it is probably for that reason that over the past year Prezzo's shares have not followed its operational performance.

The group announced an 8 per cent, two-fingers-up-to-the-recession hike in annual pre-tax profits yesterday, which predictably sent the stock up by 7.5 per cent. Despite the good numbers over the past year, however, the stock has not replicated Prezzo's impressive numbers. Only over the last month, when the shares are up 16 per cent, has the market seemed to realise that there might be mileage in the idea that pizza restaurants are coping with the recession. Over the past year as a whole, the stock is down 40 per cent.

Sadly, the improvements do not mean we think that Prezzo's shares are worth buying now. The market is inherently worried about anything that sells directly to the consumer, a point conceded by the company in its outlook statement yesterday. The group does go to say that vis-à-vis its competitors it is well set, while watchers at Numis point out that trading on 3.2 times enterprise value to Ebitda, the group's valuation is "lowly".

We do think that Prezzo is one of the better names in the sector, but believe that being so dependent on what will be a struggling consumer economy in 2009, the share price will stay depressed. Investors should jump into Prezzo's stock when things start to get better, but not before, and that may not happen too soon. Cautious hold.

FFastfill

Our view: Hold

Share price: 5.38p (+0.13p)

The last place you wanted to find yourself about a year ago, as it became apparent that the banks were in trouble, was being reliant entirely on these institutions for your revenue.

That is, however, where the derivatives trading software group FFastFill found itself, but despite being hopelessly exposed to possibly the most toxic of industries, the company is holding its own. In a trading statement issued yesterday, the group said that it would turn a small profit for the full year and that its order book is up.

Its executive chairman, Keith Todd, reckons that while it is not isolated from banks' problems, derivatives trading is not at the epicentre of the trouble. The fallout is that a plethora of new trading boutiques is likely to emerge, he says, which will not only help FFastFill's sales but will also help to generate revenues through after-sales offerings. Unlike many Aim-listed companies, FFastFill's stock price has held up well in the year, falling just 26 per cent.

Watchers at Edison point out, however, that despite FFastFill's surprisingly secure markets, the company has not avoided "the freeze" in banks' buying decisions; it is difficult to see any thawing for the rest of this year. The experts reckon the company's licensing model gives it a "specialist and potentially valuable offering in a growing and consolidating sector". We would hold fire until the banks start making, and therefore spending, a bit more money. Hold.

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