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
News
ebooksAn unforgettable anthology of contemporary reportage
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

Guru Careers: Pricing Analyst

£30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K YR1: SThree: At SThree, we like to be dif...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is a mul...

Guru Careers: C# Project Team Lead

£55 - 65k (DOE): Guru Careers: A unique opportunity for a permanent C# Develop...

Day In a Page

Fifa corruption: The 161-page dossier that exposes the organisation's dark heart

The 161-page dossier that exposes Fifa's dark heart

How did a group of corrupt officials turn football’s governing body into what was, in essence, a criminal enterprise? Chris Green and David Connett reveal all
Mediterranean migrant crisis: 'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves,' says Tripoli PM

Exclusive interview with Tripoli PM Khalifa al-Ghweil

'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves'
Raymond Chandler's Los Angeles: How the author foretold the Californian water crisis

Raymond Chandler's Los Angeles

How the author foretold the Californian water crisis
Chinese artist who posted funny image of President Xi Jinping facing five years in prison as authorities crackdown on dissent in the arts

Art attack

Chinese artist who posted funny image of President Xi Jinping facing five years in prison
Marc Jacobs is putting Cher in the limelight as the face of his latest campaign

Cher is the new face of Marc Jacobs

Alexander Fury explains why designers are turning to august stars to front their lines
Parents of six-year-old who beat leukaemia plan to climb Ben Nevis for cancer charity

'I'm climbing Ben Nevis for my daughter'

Karen Attwood's young daughter Yasmin beat cancer. Now her family is about to take on a new challenge - scaling Ben Nevis to help other children
10 best wedding gift ideas

It's that time of year again... 10 best wedding gift ideas

Forget that fancy toaster, we've gone off-list to find memorable gifts that will last a lifetime
Paul Scholes column: With the Premier League over for another year, here are my end of season awards

Paul Scholes column

With the Premier League over for another year, here are my end of season awards
Heysel disaster 30th anniversary: Liverpool have seen too much tragedy to forget fateful day in Belgium

Liverpool have seen too much tragedy to forget Heysel

Thirty years ago, 39 fans waiting to watch a European Cup final died as a result of a fatal cocktail of circumstances. Ian Herbert looks at how a club dealt with this tragedy
Amir Khan vs Chris Algieri: Khan’s audition for Floyd Mayweather may turn into a no-win situation, says Frank Warren

Khan’s audition for Mayweather may turn into a no-win situation

The Bolton fighter could be damned if he dazzles and damned if he doesn’t against Algieri, the man last seen being decked six times by Pacquiao, says Frank Warren
Blundering Tony Blair quits as Middle East peace envoy – only Israel will miss him

Blundering Blair quits as Middle East peace envoy – only Israel will miss him

For Arabs – and for Britons who lost their loved ones in his shambolic war in Iraq – his appointment was an insult, says Robert Fisk
Fifa corruption arrests: All hail the Feds for riding to football's rescue

Fifa corruption arrests

All hail the Feds for riding to football's rescue, says Ian Herbert
Isis in Syria: The Kurdish enclave still resisting the tyranny of President Assad and militant fighters

The Kurdish enclave still resisting the tyranny of Assad and Isis

In Syrian Kurdish cantons along the Turkish border, the progressive aims of the 2011 uprising are being enacted despite the war. Patrick Cockburn returns to Amuda
How I survived Cambodia's Killing Fields: Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape the US

How I survived Cambodia's Killing Fields

Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape to the US
Stephen Mangan interview: From posh buffoon to pregnant dad, the actor has quite a range

How Stephen Mangan got his range

Posh buffoon, hapless writer, pregnant dad - Mangan is certainly a versatile actor