Investment Column: Can Johnson Matthey's surge continue?

Tullow Oil; Charles Stanley

Our view: Hold

Share price: 1478p (-29p)

Despite our best efforts to persuade them not to buy the shares a few months ago, investors in the speciality chemicals group Johnson Matthey have had a thundering good year.

The stock has put on nearly 70 per cent, and with a dividend yield of 2.7 per cent, investors are getting plenty of bang for their buck.

In April last year, we were persuaded that the economic downturn would hit the company's sales, and as a result the stock would stall. Instead, the recession had kicked in and investors clearly saw the group as a defensive bet and steamed in.

The company yesterday issued its third-quarter trading statement, saying that its key markets were recovering and that operating profits were up 10 per cent on this time last year. On the face of it, then, Johnson Matthey has seen off the worst of the global downturn, and if growth recovers, as most expect, it will be well-placed to cash in.

Of course, there is an alternative view. While we would not recommend to sell the shares, as we did last April, Johnson Matthey's shares' strong run has left it looking pricey compared with its peer group.

They trade off about 15 times forecast earnings in 2011. That does not compare favourably with the pan-European sector average of 11.5 times, even taking into account the fact that upgrades are looming.

Robert McLeod, the group's finance director, insists that the stock is good value, and that other analysts say the stock is undervalued. But then, that's the answer you would expect to get from a senior executive. You'd rightly be worried if they said anything else.

There are few bigger in the speciality chemicals sector than Johnson Matthey and size matters in this sector.

However, at the risk of missing another charge in the shares, we'll say just hold for the moment. Buy on any signs of weakness in the shares.

Tullow Oil

Our view: Buy

Share price: 1160p (-56p)

Tullow Oil, fresh from blocking ENI's plans to acquire Heritage Oil's lucrative Ugandan assets, successfully placed 80.4 million new shares, or around 10 per cent of its share capital, to raise £925m last night. The money will come in handy as Tullow, together with a yet-to-be-determined partner, exploits the Ugandan reserves. Though there have been some concerns about whether the Ugandan government will approve of Tullow's move, the company says it's on track, and, given last night's placing, we're quite happy to side with it.

Tullow has proposed to bring in either China's CNOOC or France's Total to help develop the assets and further out could potentially spin off the Ugandan development the way Cairn Energy floated its Indian arm.

Of course, Uganda is only part of the story. The injection of funds will also help in developing the company's activities in other parts of Africa. We're confirmed fans of Tullow. It has performed strongly, and the shares are up almost 18 per cent since the end of July last year. Cautious investors will rightly wonder if it's time to lock in some profits.

We think not. First, the shares have underperformed in recent sessions amid the concern about the Ugandan government's stance on the Heritage move. Yesterday's developments should see off these worries. Second, the company looks well-placed to invest in new opportunities, not least because of its track record, which should ensure continued investor appetite for the stock. While Tullow trades on a huge multiple (162.1 times Evolution's forecast full-year earnings) that's only because the company just keeps delivering. We said buy twice last year, and Tullow has rewarded us handsomely. There's enough here to suggest this tiger can be ridden higher still. Keep buying.

Charles Stanley

Our view: Buy

Share price: 244p (+5p)

After a strong recovery from its nadir during the financial crisis, Charles Stanley's shares have been treading water. The broker and asset manager, however, yesterday produced an optimistic-looking trading statement that could spark some life into the stock.

For the three months to 31 December 2009, the third quarter of its financial year, revenues were 5.2 per cent higher, at £28.4m. Client funds continue to flow into the business, and this is not surprising given that, although markets continue to be volatile, the returns from cash are paltry. The company has also decided that it's time to start hiring again – which, in the stockbroking world, can be interpreted as a sign of confidence.

A second interim dividend is on the way (which should avoid forthcoming tax rises) and, subject to market conditions, a final payout will see the total at no less than last year's 8.75p. The shares are rather illiquid, but at 11.9 times forecast full-year earnings with a prospective yield of 3.7 per cent, they trade at a discount to the sector. Prospects look good, so we say buy.

Start your day with The Independent, sign up for daily news emails
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Neil Pavier: Management Accountant

£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

Sheridan Maine: Commercial Accountant

£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

Laura Norton: Project Accountant

£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

Day In a Page

Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine
Letterman's final Late Show: Laughter, but no tears, as David takes his bow after 33 years

Laughter, but no tears, as Letterman takes his bow after 33 years

Veteran talkshow host steps down to plaudits from four presidents
Ivor Novello Awards 2015: Hozier wins with anti-Catholic song 'Take Me To Church' as John Whittingdale leads praise for Black Sabbath

Hozier's 'blasphemous' song takes Novello award

Singer joins Ed Sheeran and Clean Bandit in celebration of the best in British and Irish music
Tequila gold rush: The spirit has gone from a cheap shot to a multi-billion pound product

Join the tequila gold rush

The spirit has gone from a cheap shot to a multi-billion pound product
12 best statement wallpapers

12 best statement wallpapers

Make an impact and transform a room with a conversation-starting pattern
Paul Scholes column: Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?

Paul Scholes column

Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?