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
i100
News
Bobbi Kristina Brown, daughter of the late singer Whitney Houston, poses at the premiere of
people
News
people
News
The frequency with which we lie and our ability to get away with it both increase to young adulthood then decline with age, possibly because of changes that occur in the brain
scienceRoger Dobson knows the true story, from Pinocchio to Pollard
Voices
The male menopause: those affected can suffer hot flushes, night sweats, joint pain, low libido, depression and an increase in body fat, among other symptoms
voicesSo the male menopause is real, they say, but what would the Victorians, 'old' at 30, think of that, asks DJ Taylor
Life and Style
health
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: DBA Developer - SQL Server

£30000 - £35000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: Customer Service Administrator

£13000 - £15000 per annum: Recruitment Genius: Are you passionate about custom...

Recruitment Genius: Dialler Administrator

£22000 - £25000 per annum: Recruitment Genius: Main purpose: Under the directi...

Ashdown Group: Contracts Manager - City of London

£35000 - £37000 per annum + benefits : Ashdown Group: Contracts Manager - City...

Day In a Page

Turkey-Kurdish conflict: Obama's deal with Ankara is a betrayal of Syrian Kurds and may not even weaken Isis

US betrayal of old ally brings limited reward

Since the accord, the Turks have only waged war on Kurds while no US bomber has used Incirlik airbase, says Patrick Cockburn
VIPs gather for opening of second Suez Canal - but doubts linger over security

'A gift from Egypt to the rest of the world'

VIPs gather for opening of second Suez Canal - but is it really needed?
Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Fashion editor, Alexander Fury, applauds a man who clearly has more important things on his mind
The male menopause and intimations of mortality

Aches, pains and an inkling of mortality

So the male menopause is real, they say, but what would the Victorians, 'old' at 30, think of that, asks DJ Taylor
Man Booker Prize 2015: Anna Smaill - How can I possibly be on the list with these writers I have idolised?

'How can I possibly be on the list with these writers I have idolised?'

Man Booker Prize nominee Anna Smaill on the rise of Kiwi lit
Bettany Hughes interview: The historian on how Socrates would have solved Greece's problems

Bettany Hughes interview

The historian on how Socrates would have solved Greece's problems
Art of the state: Pyongyang propaganda posters to be exhibited in China

Art of the state

Pyongyang propaganda posters to be exhibited in China
Mildreds and Vanilla Black have given vegetarian food a makeover in new cookbooks

Vegetarian food gets a makeover

Long-time vegetarian Holly Williams tries to recreate some of the inventive recipes in Mildreds and Vanilla Black's new cookbooks
The haunting of Shirley Jackson: Was the gothic author's life really as bleak as her fiction?

The haunting of Shirley Jackson

Was the gothic author's life really as bleak as her fiction?
Bill Granger recipes: Heading off on holiday? Try out our chef's seaside-inspired dishes...

Bill Granger's seaside-inspired recipes

These dishes are so easy to make, our chef is almost embarrassed to call them recipes
Ashes 2015: Tourists are limp, leaderless and distinctly UnAustralian

Tourists are limp, leaderless and distinctly UnAustralian

A woefully out-of-form Michael Clarke embodies his team's fragile Ashes campaign, says Michael Calvin
Blairites be warned, this could be the moment Labour turns into Syriza

Andrew Grice: Inside Westminster

Blairites be warned, this could be the moment Labour turns into Syriza
HMS Victory: The mystery of Britain's worst naval disaster is finally solved - 271 years later

The mystery of Britain's worst naval disaster is finally solved - 271 years later

Exclusive: David Keys reveals the research that finally explains why HMS Victory went down with the loss of 1,100 lives
Survivors of the Nagasaki atomic bomb attack: Japan must not abandon its post-war pacifism

'I saw people so injured you couldn't tell if they were dead or alive'

Nagasaki survivors on why Japan must not abandon its post-war pacifism
Jon Stewart: The voice of Democrats who felt Obama had failed to deliver on his 'Yes We Can' slogan, and the voter he tried hardest to keep onside

The voter Obama tried hardest to keep onside

Outgoing The Daily Show host, Jon Stewart, became the voice of Democrats who felt the President had failed to deliver on his ‘Yes We Can’ slogan. Tim Walker charts the ups and downs of their 10-year relationship on screen