Investment Column: Carillion is cheap but not for the long haul

Carillion

Our view: Buy

Share price: 295.5p (+0.5p)

If debt is a dirty word, Carillion is busy trying to erase it. The company has an array of different businesses here and abroad, with a focus on construction, support services, outsourcing, healthcare and public-private partnerships. If you think that leaves it open to a degree of stick, you'd be right. But what about the investment case?

At the moment, at least, the signs are pointing in the right direction. Yesterday, Carillion announced the disposal of part of its stakes in two public-private partnership projects for £86.9m, which will generate a one-off profit of £12.2m.

The proceeds will be used to cut borrowing and the group expects to be in a positive net cash position by the end of the year. Given what has been happening over the last couple of years, that is not a bad place to be, and the transaction looks a sensible one.

It also frees up resources for new projects (the company is preferred bidder on two). Over the past 12 months, Carillion's shares have been volatile but the general trend has been upward (they have risen by nearly 50 per cent in that time), helped by the market recovery and improving economic sentiment. Of course, it's not all good news. Carillion's Middle East operations are likely to endure difficult times because of events in Dubai. The UK public sector is also set to shrink, although wheezes such as PPP, used to get debt off the Government's books, will probably continue.

At eight times 2010 earnings, the shares look inexpensive and there is a prospective yield of about 5 per cent to go with it, which makes the stock doubly interesting. We are not yet willing to be enthusiastic supporters of this business but, on valuation grounds, it looks to be worth a flutter.

That being the case we recommend a buy but be prepared to cut and run and take profits if the shares show significant gains in the coming months.



Renishaw

Our view: Hold

Share price: 563p (-3p)

Things are looking up at Renishaw. The engineering company has reversed the voluntary pay cuts it introduced at the start of this year, with employees set to receive their full salaries from the beginning of 2010. Renishaw even announced a partial refund, which will see staff reimbursed for a proportion of the cuts they accepted over recent months. Why should shareholders be cheering this?

Well, the turnaround reflects not just the recovery, with both orders and revenues up, but also the quality of Renishaw's managers. This is a business that appears to be on the right track and will make gains as the wider economy regains its composure. The shares have rallied with the wider market, more than doubling since they hit a low of 248.5p in March. But go back to January and they were trading at about 500p, compared to 563p last night. The gains narrow further if you go back to 2008. In mid-September of that year, with markets convulsing in the aftermath of the Lehman Brothers bankruptcy, they were within shooting distance of 800p. So there are grounds to believe there is room for further improvement, especially if Renishaw's interim results in January show continued momentum.

Still, the stock trades at 42.5 times Finn Cap's forecast earnings for this year and this appears high, particularly in light of the risks to the economy. If the recovery falters even temporarily, Renishaw may be knocked off course. There is much to recommend this company, but we think the shares are high enough for now. So hold.



Wichford

Our view: Hold

Share price: 9.25p (-0.5p)

On the face of it, there is a lot to get excited about with Wichford, a property company based in the Isle of Man.

It lets the majority of its portfolio to governments, which are supposedly safer tenants. With the commercial property market returning to health in recent weeks, property is all of a sudden one of the industries in which to park your money. For investors, the story gets even better.

As part of yesterday's preliminary results, Wichford raised its dividend, giving investors a yield of more than 6 per cent.However, unlike other property companies, Wichford's shares have lagged in the last quarter, largely amid concerns about its burgeoning debt pile of £517m, against net assets of just £47.7m. Even otherwise favourable analysts argue that this is "undesirable leverage", but they believe property yields are are stabilising and any increase in value will be magnified in the performance of the [net asset value] per share. So the share price should rise, right?

Maybe. Our concern is that debt is a dirty word these days. Investors will be cautious anout any company that is leveraged so highly. We would sit on the fence for a while yet. Hold for now.

Start your day with The Independent, sign up for daily news emails
News
Young Winstone: His ‘tough-guy’ image is a misconception
people
Sport
Adnan Januzaj and Gareth Bale
footballManchester United set to loan out Januzaj to make room for Bale - if a move for the Welshman firms up
Arts and Entertainment
Ellie Levenson’s The Election book demystifies politics for children
bookNew children's book primes the next generation for politics
News
Outspoken: Alexander Fury, John Rentoul, Ellen E Jones and Katy Guest
newsFrom the Scottish referendum to the Ice Bucket Challenge, our writers voice their opinions
PROMOTED VIDEO
News
i100
Sport
Yaya Sanogo, Mats Hummels, Troy Deeney and Adnan Januzaj
footballMost Premier League sides are after a striker, but here's a full run down of the ins and outs that could happen over the next month
News
Nigel Farage celebrates with a pint after early local election results in the Hoy and Helmet pub in South Benfleet in Essex
peopleHe has shaped British politics 'for good or ill'
Arts and Entertainment
Pharrell Williams' “Happy” was the most searched-for song lyric of 2014
musicThe power of song never greater, according to our internet searches
Sport
Tim Sherwood raises his hand after the 1-0 victory over Stoke
footballFormer Tottenham boss leads list of candidates to replace Neil Warnock
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Voices
Strictly Come Dancing was watched by 6.9m viewers
voicesIt has been hard to form generally accepted cultural standards since the middle of the 19th century – and the disintegration is only going to accelerate, says DJ Taylor
Arts and Entertainment
Roffey says: 'All of us carry shame and taboo around about our sexuality. But I was determined not to let shame stop me writing my memoir.'
books
News
Danielle George is both science professor and presenter
people
News
i100
News
Caplan says of Jacobs: 'She is a very collaborative director, and gives actors a lot of freedom. She makes things happen.'
people
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Selby Jennings: VP/SVP Credit Quant- NY- Investment Bank

Not specified: Selby Jennings: VP/SVP Credit Quant Top tier investment bank i...

Selby Jennings: Quantitative Research | Equity | New York

Not specified: Selby Jennings: Quantitative Research | Global Equity | New Yor...

Selby Jennings: SVP Model Validation

Not specified: Selby Jennings: SVP Model Validation This top tiered investment...

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

Day In a Page

War with Isis: The West needs more than a White Knight

The West needs more than a White Knight

Despite billions spent on weapons, the US has not been able to counter Isis's gruesome tactics, says Patrick Cockburn
Return to Helmand: Private Davey Graham recalls the day he was shot by the Taliban

'The day I was shot by the Taliban'

Private Davey Graham was shot five times during an ambush in 2007 - it was the first, controversial photograph to show the dangers our soldiers faced in Helmand province
Revealed: the best and worst airlines for delays

Revealed: the best and worst airlines for delays

Many flyers are failing to claim compensation to which they are entitled, a new survey has found
The stories that defined 2014: From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions

The stories that defined 2014

From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions
Stoke-on-Trent becomes first British city to be classified as 'disaster resilient' by the United Nations

Disaster looming? Now you know where to head...

Which British city has become the first to be awarded special 'resilience' status by the UN?
Finally, a diet that works: Californian pastor's wildly popular Daniel Plan has seen his congregation greatly reduced

Finally, a diet that works

Californian pastor's wildly popular Daniel Plan has seen his congregation greatly reduced
Say it with... lyrics: The power of song was never greater, according to our internet searches

Say it with... lyrics

The power of song was never greater, according to our internet searches
Professor Danielle George: On a mission to bring back the art of 'thinkering'

The joys of 'thinkering'

Professor Danielle George on why we have to nurture tomorrow's scientists today
Monique Roffey: The author on father figures, the nation's narcissism and New Year reflections

Monique Roffey interview

The author on father figures, the nation's narcissism and New Year reflections
Introducing my anti-heroes of 2014

Introducing my anti-heroes of 2014

Their outrageousness and originality makes the world a bit more interesting, says Ellen E Jones
DJ Taylor: Good taste? It's all a matter of timing...

Good taste? It's all a matter of timing...

It has been hard to form generally accepted cultural standards since the middle of the 19th century – and the disintegration is only going to accelerate, says DJ Taylor
Olivia Jacobs & Ben Caplan: 'Ben thought the play was called 'Christian Love'. It was 'Christie in Love' - about a necrophiliac serial killer'

How we met

Olivia Jacobs and Ben Caplan
Bill Granger recipes: Our chef's breakfasts will revitalise you in time for the New Year

Bill Granger's healthy breakfasts

Our chef's healthy recipes are perfect if you've overindulged during the festive season
Transfer guide: From Arsenal to West Ham - what does your club need in the January transfer window?

Who does your club need in the transfer window?

Most Premier League sides are after a striker, but here's a full run down of the ins and outs that could happen over the next month
The Last Word: From aliens at FA to yak’s milk in the Tour, here’s to 2015

Michael Calvin's Last Word

From aliens at FA to yak’s milk in the Tour, here’s to 2015