Investment Column: EasyJet's trouble at the top is a worry

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The Independent Online

EasyJet

Our view: hold

Share price: 381.1p (+4.7p)

The last couple of years have been turbulent for the airline industry. First spiking oil prices and then, more seriously, the financial crisis, which did for a number of companies in the sector. And despite being a budget airline, which was supposed to insulate the group during the worst of the crisis, easyJet's investors have seen the value of their investment fall from more than 600p-a-share at the end of 2007.

But all is not lost. Even though a number of holiday companies have issued profits warnings in recent weeks, easyJet has seen its passenger traffic increase, and yesterday reported that the number of passengers taking its planes last month increased by 8.4 per cent compared to August last year.

The group is benefiting from its perceived cheaper flights and because an increasing number of businesses, which have promised shareholders that they are cracking down on costs, are turning to low-cost carriers when they send their staff across Europe.

For that reason, we would have generally been upbeat about easyJet's prospects. We last tipped the stock at 296p, making a tidy sum in the meantime and ordinarily we would be prepared to back the shares again, especially as we think the 12 per cent fall in the share price over the last six months arguably misses the recent revival.

But there's a fly in the ointment: boardroom upheaval. Back in June, Sir Stelios Haji-Ioannou, easyJet's founder who still owns a big chunk of the company, went to the High Court accusing management of a string of bad decisions.

The group, as you might expect, denies the allegations, but the row is, we believe, acting as a drag on the shares. With no dividend, and a forecast multiple of 15.4 times, which is pretty much in line, there may not be an immediate catalyst to the stock price. There have also been concerns about punctuality. We maintain that easyJet is in a stronger position than most airlines and, for that reason, would stay on board for the time being So hold, but don't buy any more.



Kofax

Our view: Take Profits

Share price: 245p (+3p)

Kofax is one of those companies that engages in creative abuse of the English language when it comes to explain what it does. Perhaps this is a consequence of its Californian roots. Or because it is an IT company and this sort of thing is endemic.

In plain English, the "leading provider of document driven business process automation solutions" has been doing well. Its software business was the star in a half that saw the company reporting a 36 per cent rise in pre-tax profits to $16.3m (£10.6m). The hardware business slipped back – a bit – but the group is confident it can turn this around.

However, on the downside, Kofax was cautious about the outlook with revenue growth expected to slow in the software division to about 10 per cent (from in excess of 25 per cent). Economic uncertainties were cited and the forecast gives management room to outperform. But around six months ago we recommended holding Kofax. The shares have done us proud, and are up a third since the start of the year, trading on about 18 times next year's forecast earnings. So we'd use the opportunity to take profits.



Goals Soccer Centres

Our view: buy

Share price: 121p (+6p)

It was a game of two halves for Goals Soccer Centres (Goals) for the six months to 30 June. In January, the operator of 37 football centres suffered an £800,000 fall in profits during the worst snow for 47 years. However, it basked in warmer trading before and during the World Cup which it used to drive interest in key product areas.

Goals, which opened a centre in California in June through a joint venture, launched World Cup-themed products and a tournament edition of its Nutmeg magazine, which generated an increase in football parties and corporate events that the company expects to continue in the second half.

The final score was still a 3 per cent fall in adjusted pre-tax profits to £3.8m over the half-year, on total sales up by 3 per cent to £13.2m. But despite the profit fall, Goals maintained its dividend and continues to expand, as it seeks to become a national operator of 5-a-side soccer centres.

Furthermore, the shares now look relatively cheap as they trade on a 2011 multiple of just 8 times forecast earnings. In March, we said buy at 150p which now doesn't now look that clever, but at the current valuation we still think investors will hit the back of the net. So buy.

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