Investment Column: Centrica is showing very good form, buy

Man Group; Qinetiq


Our view: Buy

Share price: 328p (+0.6)

It's an ill wind that blows nobody any good, as the saying goes. In this case, the not-entirely ill wind is the collapse of property services specialist Connaught Group, now under the administration of KPMG. The beneficiary is Centrica, which stepped in swiftly to pick up parts of Connaught's compliance business for the knock-down price of £11.2m yesterday.

Not only does the deal look set to secure about 600 jobs threatened by Connaught's painful demise, and bring in more than 20,000 customer contracts. It is also a further move from Centrica to establish a complete energy services business alongside its traditional supply arm, the fifth such purchase in just two years.

The parts of the Connaught business that Centrica's British Gas arm is buying include gas and electricity services such as installation and maintenance of commercial boilers. Others, such as water and pest control, are not included. This acquisition, the company says, gives it a platform that is needed to develop and rapidly build something it calls a "complete energy solutions business". Whatever that means.

However, in English, the deal should accelerate Centrica's growth strategy in the business energy services market, which is expected to be worth £2bn by 2015. For Connaught, the deal is a necessary evil. For Centrica, it is part of an increasingly well-executed diversification strategy. Alongside the creation of a strong services business, the group is also boosting its reserves. Most recently Centrica laid out £144m to double its stake in Norway's Stratfjord field, following the £229m purchase of wells from Canada's Suncor earlier in the year, and the £1.3bn acquisition of Venture Production last year. The company is also investing heavily in gas storage facilities.

Centrica's share price did not react much to the deal. But every little helps and at 13 times this year's forecast earnings with a tasty 4.2 per cent yield, they are by no means pricey. Buy.

Man Group

Our view: Sell

Share price: 214.1p (-5.2p)

We last looked at Man Group quite recently (in May) but have returned to the fray on the back of its recent trading update, which contains superficial signs of life, at least when it comes to the performance of the key AHL fund. It put in an improved performance after some distinctly rocky times. Elsewhere, though, things are less rosy. Investors are pulling funds out and profits are set to fall sharply at the half, to $215m (£136m) from $280m.

AHL's bounceback lifted the overall assets under management because what money remains invested grew. What it didn't do was to grow sufficiently for Man to be able to charge any bonus performance fees.

Institutional money is still coming in and the company expects that to continue. It is also hoping to prove sceptics about its deal to buy GLG Partners (criticised as expensive) wrong. The yield on this company remains very strong – it is forecast at 6.3 per cent for this year. But the shares at 14.5 times this year's forecast earnings, although falling to 9 times next year's, are not cheap. We were holders at 238p, but the shares have fallen and found no momentum since. We think the best is over for Man. Income seekers will be attracted by the yield, but we're inclined to pull out until there are more concrete signs of revival. Sell.

Qinetiq

Our view: Buy

Share price: 109.4p (-2.8p)

Investors in the defence sector must have their fingers crossed. In the UK, they are contending with the Government's Strategic Defence and Security Review, while across the pond, the US Secretary of Defence is looking to scale back non-operational costs.

This, as Qinetiq, the milliary gadget maker, confirmed yesterday, has led to delayed orders and limited visibility for the future. Given this backdrop, parking your money with the likes of Qinetiq may not seem like the smartest of ideas. But as we've highlighted in the past, this one could yet confound expectations.

The reason is the chief executive Leo Quinn and his self-help plan to put Qinetiq, which has been through some grim times in the recent past, on an even keel. The programme is aimed at reforming the culture of the business and overhauling the balance sheet. We think it could yet spark some new interest in the shares.

Positive newsflow on this front could underpin price gains as peers are knocked back by defence spending cuts. And though it is an admittedly risky investment strategy, we'd highlight the valuation, which, at under10 times forward earnings, is by no means expensive. This is not for the faint hearted, as sentiment in the wider sector is likely to remain depressed for some time. But for those willing to take a punt, we think there is scope for revival at Qinetiq. Buy.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Telesales Executive - OTE £25,000

£13000 - £25000 per annum: Recruitment Genius: Would you like to be part of a ...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Are you passionate about sale...

Ashdown Group: Graduate Developer (Trainee) - City, London

£25000 per annum + benefits: Ashdown Group: A large financial services company...

Ashdown Group: Marketing Assistant - Financial Services Sector - London

£20400 per annum: Ashdown Group: An established and highly reputable organisat...

Day In a Page

The Silk Roads that trace civilisation: Long before the West rose to power, Asian pathways were connecting peoples and places

The Silk Roads that trace civilisation

Long before the West rose to power, Asian pathways were connecting peoples and places
House of Lords: Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled

The honours that shame Britain

Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled
When it comes to street harassment, we need to talk about race

'When it comes to street harassment, we need to talk about race'

Why are black men living the stereotypes and why are we letting them get away with it?
International Tap Festival: Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic

International Tap Festival comes to the UK

Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic
War with Isis: Is Turkey's buffer zone in Syria a matter of self-defence – or just anti-Kurd?

Turkey's buffer zone in Syria: self-defence – or just anti-Kurd?

Ankara accused of exacerbating racial division by allowing Turkmen minority to cross the border
Doris Lessing: Acclaimed novelist was kept under MI5 observation for 18 years, newly released papers show

'A subversive brothel keeper and Communist'

Acclaimed novelist Doris Lessing was kept under MI5 observation for 18 years, newly released papers show
Big Blue Live: BBC's Springwatch offshoot swaps back gardens for California's Monterey Bay

BBC heads to the Californian coast

The Big Blue Live crew is preparing for the first of three episodes on Sunday night, filming from boats, planes and an aquarium studio
Austin Bidwell: The Victorian fraudster who shook the Bank of England with the most daring forgery the world had known

Victorian fraudster who shook the Bank of England

Conman Austin Bidwell. was a heartless cad who carried out the most daring forgery the world had known
Car hacking scandal: Security designed to stop thieves hot-wiring almost every modern motor has been cracked

Car hacking scandal

Security designed to stop thieves hot-wiring almost every modern motor has been cracked
10 best placemats

Take your seat: 10 best placemats

Protect your table and dine in style with a bold new accessory
Ashes 2015: Alastair Cook not the only one to be caught in The Oval mindwarp

Cook not the only one to be caught in The Oval mindwarp

Aussie skipper Michael Clarke was lured into believing that what we witnessed at Edgbaston and Trent Bridge would continue in London, says Kevin Garside
Can Rafael Benitez get the best out of Gareth Bale at Real Madrid?

Can Benitez get the best out of Bale?

Back at the club he watched as a boy, the pressure is on Benitez to find a winning blend from Real's multiple talents. As La Liga begins, Pete Jenson asks if it will be enough to stop Barcelona
Athletics World Championships 2015: Beijing witnesses new stage in the Jessica Ennis-Hill and Katarina Johnson-Thompson heptathlon rivalry

Beijing witnesses new stage in the Jess and Kat rivalry

The last time the two British heptathletes competed, Ennis-Hill was on the way to Olympic gold and Johnson-Thompson was just a promising teenager. But a lot has happened in the following three years
Jeremy Corbyn: Joining a shrewd operator desperate for power as he visits the North East

Jeremy Corbyn interview: A shrewd operator desperate for power

His radical anti-austerity agenda has caught the imagination of the left and politically disaffected and set a staid Labour leadership election alight
Isis executes Palmyra antiquities chief: Defender of ancient city's past was killed for protecting its future

Isis executes Palmyra antiquities chief

Robert Fisk on the defender of the ancient city's past who was killed for protecting its future