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.

PROMOTED VIDEO
Arts and Entertainment
booksPhotographer Richard Young has been snapping celebrities at play for 40 years - but he says it wasn’t all fun and games...
News
i100
Sport
Aguero - who single-handedly has kept City's Champions League dreams alive - celebrates his dramatic late winner
footballManchester City 3 Bayern Munich 2: Argentine's late hat-rick sees home side snatch vital victory
News
Muhammad Ali pictured in better health in 2006
peopleBut he has enjoyed publicity from his alleged near-death experience
Arts and Entertainment
Tony breaks into Ian Garrett's yacht and makes a shocking discovery
TVReview: Revelations continue to make this drama a tough watch
News
news
News
ebooksNow available in paperback
News
peopleSinger tells The Independent what life is like in rehab in an exclusive video interview
News
The assumption that women are not as competent in leadership positions as men are leads to increased stress in the workplace
science... and it's down to gender stereotypes
Arts and Entertainment
Inner sanctum: Tove Jansson and friends in her studio in 1992
booksWhat was the inspiration for Finland's most famous family?
News
i100
Arts and Entertainment
Singer songwriter Bob Dylan performs on stage
films
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

Citifocus Ltd: Product Development - Asset Management

£Attractive: Citifocus Ltd: High calibre individual with significant product d...

Citifocus Ltd: Credit Ratings - Banking Sector

£Negotiable: Citifocus Ltd: Leading global bank seeks experienced credit analy...

Citifocus Ltd: Economic Crime Investigation & Analysis

£Attractive Package: Citifocus Ltd: High calibre individual with a high degree...

Citifocus Ltd: Snr Risk Analyst - Capital & Liquidity

£Attractive: Citifocus Ltd: High calibre individual with superior academics an...

Day In a Page

Homeless Veterans Christmas Appeal: Drifting and forgotten - turning lives around for ex-soldiers

Homeless Veterans Christmas Appeal: Turning lives around for ex-soldiers

Our partner charities help veterans on the brink – and get them back on their feet
Putin’s far-right ambition: Think-tank reveals how Russian President is wooing – and funding – populist parties across Europe to gain influence in the EU

Putin’s far-right ambition

Think-tank reveals how Russian President is wooing – and funding – populist parties across Europe to gain influence in the EU
Tove Jansson's Moominland: What was the inspiration for Finland's most famous family?

Escape to Moominland

What was the inspiration for Finland's most famous family?
Nightclubbing with Richard Young: The story behind his latest book of celebrity photographs

24-Hour party person

Photographer Richard Young has been snapping celebrities at play for 40 years. As his latest book is released, he reveals that it wasn’t all fun and games
Michelle Obama's school dinners: America’s children have a message for the First Lady

A taste for rebellion

US children have started an online protest against Michelle Obama’s drive for healthy school meals by posting photos of their lunches
Colouring books for adults: How the French are going crazy for Crayolas

Colouring books for adults

How the French are going crazy for Crayolas
Jack Thorne's play 'Hope': What would you do as a local politician faced with an impossible choice of cuts?

What would you do as a local politician faced with an impossible choice of cuts?

Playwright Jack Thorne's latest work 'Hope' poses the question to audiences
Ed Harcourt on Romeo Beckham and life as a court composer at Burberry

Call me Ed Mozart

Paloma Faith, Lana del Ray... Romeo Beckham. Ed Harcourt has proved that he can write for them all. But it took a personal crisis to turn him from indie star to writer-for-hire
10 best stocking fillers for foodies

Festive treats: 10 best stocking fillers for foodies

From boozy milk to wasabi, give the food-lover in your life some extra-special, unusual treats to wake up to on Christmas morning
Phil Hughes head injury: He had one weakness – it has come back to haunt him

Phil Hughes had one weakness – it has come back to haunt him

Prolific opener had world at his feet until Harmison and Flintoff bounced him
'I have an age of attraction that starts as low as four': How do you deal with a paedophile who has never committed a crime?

'I am a paedophile'

Is our approach to sex offenders helping to create more victims?
How bad do you have to be to lose a Home Office contract?

How bad do you have to be to lose a Home Office contract?

Serco given Yarl’s Wood immigration contract despite ‘vast failings’
Green Party on the march in Bristol: From a lost deposit to victory

From a lost deposit to victory

Green Party on the march in Bristol
Putting the grot right into Santa's grotto

Winter blunderlands

Putting the grot into grotto
'It just came to us, why not do it naked?' London's first nude free runner captured in breathtaking images across capital

'It just came to us, why not do it naked?'

London's first nude free runner captured in breathtaking images across capital