Investment Column: Cookson cannot escape its market woes

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The Independent Online


Our view: Sell

Share price: 12.5p (unchanged)

Nobody can accuse Nick Salmon, the chief executive of Cookson Group, of not doing everything he can to counter what he admits are poor trading conditions for the group. The problem is, it seems, that whatever he does is not going to make Cookson a viable investment proposition for some time.

The company, which supplies consumable goods to various industries, issued its full-year results for 2008 yesterday, saying that headline profits were up 18 per cent. The group's pension fund trustees have allowed it to miss a £22m top-up in 2009, and by paying back some unnecessary debt facilities early, its bankers have cut it some slack on its covenants. Add to that the fact that the company's £241m rights issue has worked well and it has cut £40m of costs from the business, and it is easy to get excited about the stock.

That is until you read the small print. Cookson's markets are becoming very soft, and Mr Salmon admits that 2009 is going to be tough, albeit with the group in better shape. Cookson's update yesterday said that the fourth quarter was bad, with Mr Salmon conceding yesterday that he was unsure when things were going to get any better. In steel, for example, one of the group's key markets, production is down 24 per cent in the last year, with no indication of when it might pick up.

Watchers at Numis say that there is now little for investors to worry about in debt terms and, with all the corrective action described above coupled with the undemanding valuation of the shares trading on 3.5 times earning per share, investors should buy.

We disagree. Yes, the group has worked hard in the last few months to do what it can, and the shares are cheap. However, its end markets are likely to be no better than woeful for the rest of the year at least, and the shares will suffer according. Sell.


Our view: Hold

Share price: 43.5p (+0.5p)

A cursory glance at the data group Statpro, and investors would be eager to buy as much of the stock as possible.

The group, which reported its preliminary results yesterday, is going great guns: in the past 12 months the margin, balance sheet and costs have all performed in a way that the group would hope, and the only blip in the numbers is that adjusted pre-tax profits are down 9 per cent, reflecting moves that see costs in better shape than at the same time last year.

The chief executive, Justin Wheatley, says that now has never been a better time for the group, as asset managers, Statpro's primary clients, are seeking as much information as possible. The fact that the company has a renewal rate of more than 90 per cent suggests that he has a point.

Those thinking there is a "but" have waited long enough. The shares are down 50 per cent in the past year, and while there has been an improvement in recent weeks, yesterday's good news was met with silence by investors.

Mr Wheatley claims that its bankers at Kaupthing going bust in October did not help, and neither did the fact that Statpro raised £2m from investors at about the same time. Again, he no doubt has a point. However, while Statpro has resolved its debt issues by signing a new deal with Royal Bank of Scotland, the market is ignoring the other good news. It has shown little appetite for the stock in recent months, and while that may change, we would wait before assuming that the share price will improve. Hold.


Our view: Cautious hold

Share price: 46p (+7p)

Throughout this crisis, investors will no doubt be fondly remembering their carefree student days. For Unite, the property group that specialises in student accommodation, the last year has been somewhat less than carefree. Its share price has buckled under the weight of concerns about the valuation of Unite's property portfolio and its ability to stay within its debt covenants.

The company tried to put the market's collective mind at ease yesterday, saying that it was safely inside its covenants, while rental growth is up. It is planning not to develop some sites and will sell off what it can. Because of this, and despite a fall in full-year adjusted net asset value of 21 per cent and the adjusted loss recorded at £44.8m, the shares were up a stellar 18 per cent.

The question for investors is whether now is the time to buy. The stock was down 89 per cent on the year before yesterday and investor sentiment about all property groups, and especially small ones, is poor. Analysts at the house broker, Cazenove, say that property valuation is holding up well and that the group is performing despite the tough markets. We think, however, that being a small stock in a poor market will weigh badly on a group like Unite. Cautious hold.