Investment Column: Don't be lured by Resolution's valuation

John Menzies; Highland Gold Mining

Our view: Sell

Share price: 267.9p (+0.1p)

The last few months have not proved happy for investors in Guernsey-based Resolution, whose vainglorious bid to create a UK super insurer is not looking so super any more.

It now looks like the target of reaching £10bn in terms of market capitalisation was wildly over-ambitious. Recent statements warning that it won't be overpaying or indulging in dilutive deals suggest that there probably won't be any more deals.

Which leaves it with the job of integrating Friends Provident, AXA's UK business and Bupa Health Assurance. To be fair the (blended) price paid for the three was competitive: Killik puts it at 67 per cent of the "embedded value" of the three businesses or, in other words, the notional value of their respective existing books of business.

Yesterday, the group said operating profit more than doubled to £390m from £151m, although deals boosted the former figure. It was, however, still ahead of consensus hopes of £356m.

The group should deliver on targeted savings of £39m by the end of 2011 and the integration appears to be on track. The interim dividend is up 18.5 per cent to 6.47p, and the prospective yield is now a rather attractive 7 per cent, with plenty of cash on the balance sheet that can be returned to shareholders. There is also a healthy £2bn capital surplus over the regulatory minimum, so there shouldn't be too many worries about Resolution's financial strength.

However, while the valuation metrics might look attractive, the fact that Resolution is basically a bit of a ragbag of second-tier life insurers cannot be overlooked. The most obvious comparator is Legal & General, which produced an excellent set of results recently and is very much a top-tier player. If we had to pick one of the two as a home for savings, L&G would win out. The same goes for the shares. Resolution is a sell.

John Menzies

Our view: Buy

Share price: 505.5p (+50.5p)

John Menzies brings together two different businesses. The aviation arm is a leading supplier of aviation handling and cargo services to some of the world's biggest airlines, while the distribution business is a key part of the newspaper and magazines supply chain in the UK.

The two divisions are, unsurprisingly, hostage to the rhythms of the industries they serve. So, aviation is booming, with yesterday's half-yearly results showing that turnover had climbed to £332.7m, against £300.9m last year. At the same time, the division's underlying operating profits were up by £4.7m at £13.8m.

Distribution was less successful, with both turnover and profits easing over the period. If you strip out the impact of last year's performance, which was lifted by the activity generated by World Cup collectables, the result was largely flat, which, given the tough trading conditions in its main markets, is not be scoffed at. Indeed, the company deserves credit for keeping the division on an even keel.

Turning back to aviation, we expect to hear news of further growth, as industry has rebounded strongly from the slump endured during the financial crisis two years ago. Adding to the attraction is the fact that, at just over seven times forward earnings, John Menzies looks downright cheap.

Highland Gold Mining

Our view: Buy

Share price: 175p (+1p)

Gold prices have been on an upward trend for some time now, but the recent spike stands out, with the yellow metal setting a string of new records in recent weeks. Highland Gold, however, has not rallied in tandem. Indeed, its shares are well below the recent peak of 199.5p struck in December.

In a trading update yesterday the group, which operates in Russia, announced it had managed an 8 per cent jump in its first-half production. Although slightly disappointing for some in the City, the company did reassure investors that it was on track to meet its expectations for the year.

The update may have provided little exciting news, but it does highlight that Highland Gold seems to provide good value compared with its peers. One school of thought is that if a gold miner doesn't move sharply up with the price of the commodity, then it will also avoid a large correction if the metal starts heading the other way. So, ahead of the group's half-year results next month, Highland, with its strong balance sheet and its previously stated desire to make acquisitions, seems a steady prospect.

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Billie Piper as Brona in Penny Dreadful
tvReview: It’s business as usual in Victorian London. Let’s hope that changes as we get further into the new series spoiler alert
Life and Style
A nurse tends to a recovering patient on a general ward at The Queen Elizabeth Hospital in Birmingham
Arts and Entertainment
No Offence
tvReview: No Offence has characters who are larger than life and yet somehow completely true to life at the same time spoiler alert
Chuck Norris pictured in 1996
ebooksA celebration of British elections
Arts and Entertainment
Sarah Lucas, I SCREAM DADDIO, Installation View, British Pavilion 2015
artWhy Sarah Lucas is the perfect choice to represent British art at the Venice Biennale
A voter placing a ballot paper in the box at a polling station
Arts and Entertainment
The Queen (Kristin Scott Thomas) in The Audience
theatreReview: Stephen Daldry's direction is crisp in perfectly-timed revival
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant - Swiss Banking and Finance

£20000 - £25000 per annum + Uncapped commission: SThree: Can you speak German,...

Ashdown Group: Marketing Executive - 6 month FTC - Central London

£25000 - £30000 per annum + benefits: Ashdown Group: An exciting opportunity f...

Ashdown Group: Junior Project Manager (website, web application) - Agile

£215 per day: Ashdown Group: Junior Project Manager (website, web application ...

Guru Careers: Software Engineer / Software Developer

£40-50K: Guru Careers: We are seeking an experienced Software Engineer / Softw...

Day In a Page

General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

On the margins

From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'
Sarah Lucas is the perfect artist to represent Britain at the Venice Biennale

Flesh in Venice

Sarah Lucas has filled the British pavilion at the Venice Biennale with slinky cats and casts of her female friends' private parts. It makes you proud to be a woman, says Karen Wright
11 best anti-ageing day creams

11 best anti-ageing day creams

Slow down the ageing process with one of these high-performance, hardworking anti-agers
Juventus 2 Real Madrid 1: Five things we learnt, including Iker Casillas is past it and Carlos Tevez remains effective

Juventus vs Real Madrid

Five things we learnt from the Italian's Champions League first leg win over the Spanish giants
Ashes 2015: Test series looks a lost cause for England... whoever takes over as ECB director of cricket

Ashes series looks a lost cause for England...

Whoever takes over as ECB director of cricket, says Stephen Brenkley
Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power