Investment Column: Dig in and buy UK Coal for the long term

UK Coal

Our view: Buy

Share price: 91p (-4.25p)

Any investor prepared to believe UK Coal's plans for production hikes at several of its sites in the coming years (and that coal prices will hit the expectations of most pundits) should have a bet on the group.

The problem is that from where things stand today, the company does not look that impressive. Coal prices have suffered in soft international markets, which the group can do little about, and revenues have fallen: approximate year-to-date earnings of £255m are well below the £292m achieved last year, while a fatal accident at UK Coal's Kellingley mine in North Yorkshire last week will also lead to closures for about a fortnight, with more declines in revenues expected.

This has made UK Coal a dangerous place to park your money recently. Any cash is earmarked for investment, and the finance director, David Brocksom, predicts that a dividend is at least two years away. The share price itself has jumped around, reflecting the volatile prices.

UK Coal has, however, a strong following among analysts, most of whom agree that the stock – trading on a 2010 enterprise value to Ebitda of 8.4 times – is cheap. Couple this to the potential of some of the assets it plans to exploit in the next two years and predicted rises in the coal price, and the group is a nailed-on buy, they say.

The company has certainly made financial improvements. Last month it raised £100m through a rights issue, paying down and restructuring its debt, while it has also managed to achieve a decent price, despite the choppy markets, for its contract coal.

We certainly prefer some of the bigger international miners, but there is still potential for profit in the Yorkshire hills and, while UK Coal continues to look speculative, investors that buy now could do very nicely indeed. We think UK Coal could be a core bet once a dividend is paid. Investors will eventually want to buy, and at these levels it could be too tempting. Buy.



Scotty Group

Our view: Hold

Share price: 45.75p (-3p)

Investors in Scotty, the video communications group which issued interim results yesterday, have endured a bumpy ride of late. The shares, which were changing hands at about 42p a piece at the beginning of this year, tumbled to about 35p in April, before rallying to about 70p in May. They came back down to earth in July, touching 41.5p at the end of the month, and last night were trading at about 46p.

So is it worth a punt? Profits have been climbing, with the company clocking up £239,000 in pre-tax profits for the second half of the year, compared with £89,000 in the first half. Turnover is also on an upward trend. And last week the group won a €1m (£916,000) positioning and communication equipment contract from Eurocopter, a division of EADS, the defence and aerospace group.

On the downside, the probable public spending cuts – both in the UK and elsewhere – pose a threat to Scotty, which focuses on the government and defence markets. It may end up in the firing line as politicians vie for the mantle of fiscal responsibility. In short, while the company seems to be on the right track and the shares remain well off their highs, the risks weigh against the Buy case. We say Hold.



H&T Group

Our view: Sell

Share price: 300p (+14.75p)

The success of pawnbroker H&T is a rather depressing sign of the recession. People in dire need of money appear to be beating a path to its doors in an attempt to get credit because they cannot get it anywhere else. Then there is the sky-high gold price (another consequence of the downturn), which has enticed another group to offload old jewellery with the aim of turning a quick buck. The latter activity is what is pushing the group's profits above expectations.

Gold, however, will not remain at its elevated levels for ever, particular as investment markets recover, and opportunistic selling may prove to be just another fad. Then there is pawnbroking itself, which H&T has turned from cottage industry into industrial enterprise via its chain of shops. It has been growing fast, but it is doubtful that the pace can be sustained, whatever the company might say. Arbuthnot has H&T trading on 13 times 2010 earnings. The yield is neither here nor there at about 2.5 per cent.

Those who have ridden this pony up have done well, but we are sceptical over whether it will be able to keep up the pace over the next 12 months. Keep the gold and sell the shares. Sell.

News
Jacqueline Bisset has claimed that young women today are obsessed with being 'hot', rather than 'charming', 'romantic' or 'beautiful'
people
Sport
New Zealand fly-half Aaron Cruden pictured in The Zookeeper's Son on a late-night drinking session
rugby
News
Liam Payne has attacked the media for reporting his tweet of support to Willie Robertson and the subsequent backlash from fans
peopleBut One Direction star insists he is not homophobic
Arts and Entertainment
A bit rich: Maggie Smith in Downton Abbey
tvSeries 5 opening episode attracts lowest ratings since drama began
PROMOTED VIDEO
Arts and Entertainment
Ben Affleck stars as prime suspect Nick Dunne in the film adaptation of Gone Girl
filmBen Affleck and Rosamund Pike excel in David Fincher's film, says Geoffrey Macnab
News
news
Arts and Entertainment
Lena Dunham
booksLena Dunham's memoirs - written at the age of 28 - are honest to the point of making you squirm
Life and Style
fashionThe supermodel on her career, motherhood and Cara Delevingne
News
i100
Life and Style
A new app has been launched that enables people to have a cuddle from a stranger
techNew app offers 'PG alternative' to dating services like Tinder
Sport
Greg Dyke insists he will not resign as Football Association chairman after receiving a watch worth more than £16,000 but has called for an end to the culture of gifts being given to football officials
football
News
people
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
Jake Quickenden sings his heart out in his second audition
tvX Factor: How did the Jakes - and Charlie Martinez - fare?
Sport
premier league
Sport
Frank Lampard and his non-celebration
premier leagueManchester City vs Chelsea match report from the Etihad Stadium
Arts and Entertainment
Rachel, Chandler and Ross try to get Ross's sofa up the stairs in the famous 'Pivot!' scene
tv
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvOnly remaining original cast-member to leave crime series
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

COO / Chief Operating Officer

£80 - 100k + Bonus: Guru Careers: A COO / Chief Operating Officer is needed to...

Senior BA - Motor and Home Insurance

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Market Risk & Control Manager

Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Day In a Page

A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world
Apple still coolest brand – despite U2 PR disaster

Apple still the coolest brand

Despite PR disaster of free U2 album
Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments