Investment Column: Fast-growing SJP is being undervalued
Enterprise Inns; Euromoney
Friday 21 January 2011
Our view: Buy
Share price: 281p (+2p)
St James's Place is making a habit of beating expectations. The wealth manager reported yesterday that assets under management surged by £5.6bn to £27bn in 2010. They've doubled over the past five years. The company has always had a fairly wealthy client profile, but they seem to be getting richer, and increasingly willing to place large chunks of money with SJP after being visited by members of its 1,500-strong band of financial advisers (their numbers are up 6 per cent).
And yet despite this stellar performance, the company appears to get little credit from the stock market. What is going on? The problem that SJP faces is the continued uncertainty surrounding the 60 per cent stake in the company held by Lloyds. SJP was one of the few good things that came to the latter when it rescued HBOS. But with a new chief executive on the way, one who is likely to want to shake things up, that stake could soon be on the block. And there wasn't much guidance given yesterday.
SJP is rather unique and very reliant on its people. The uncertainty about the Lloyds stake and what might happen to it (and the effect on the business) is worrying investors. Which perhaps goes some way to explaining why these shares are so cheap. Because they are very cheap. They trade at a substantial discount to the estimated net asset value-per-share for 2010 (Panmure puts this at 332p) – this for a business that is touting growth rates of 15 to 20 per cent a year. The yield, at 1.7 per cent (forecast) is nothing to write home about but there is ample scope for that to improve. Companies like SJP have to spend money to make sales, but throw off cash in later years.
Fundamentally, SJP is a well-run and fast-growing business. The fact that the uncertainty is keeping the share price in check should be seen as a buying opportunity. Buy.
Our view: Buy
Share price: 107.5p (-2.6p)
Enterprise Inns suffered a hangover after the snow forced many consumers to cancel parties and quaff their tipples at home over Christmas.
At its AGM yesterday, Britain's biggest pubs operator said net income per pub in its "substantive estate", which accounts for about 90 per cent of its 6,800 boozers, fell by 2 per cent in the 16 weeks to 15 January. While Enterprise said the cold snap hit its operating profits in the first quarter by £2m, even without the dire weather, Enterprise's average net income per pub would have been down by about 1 per cent. Coming a day after the managed pubs operator JD Wetherspoon toasted a 3 per cent rise in 12-week underlying sales, Panmure Gordon called Enterprise's performance "slightly disappointing".
However, Enterprise boasted that it had exchanged or completed on the sales of 105 pubs, which generated proceeds of £32m – a £4m profit over book value. The company also highlighted a "strong market" for sale and leasebacks on pubs in London.
We made it a speculative buy at 98.3p in July and continue to feel it is worth the risk, despite the tough outlook. Enterprise trades on just 4.4 times forecast full-year earnings, the bulk of its £2.92bn net debt is secured till 2032 and it continues to hive off the tale of its estate at decent prices, so buy.
Our view: Buy
Share price: 705p (-27.17p)
This week's closure of the teenage girls' magazine Sugar highlights the difficulties facing publishers in the current climate. Well, perhaps not all of them. Euromoney – whose publications including Euroweek and Hedge Fund Intelligence – is at the other end of the content spectrum. And it posted a 20 per cent uplift in its first-quarter numbers yesterday. Subscription revenues, the largest part of the business, rose by 13 per cent between October and 19 January compared with a year earlier. Advertising was up 24 per cent and sponsorship up 39 per cent.
It confirms the strong momentum from the second half of the last financial year continues. In a tough market, the move to invest in subscription-based electronic information services and target emerging markets has paid off. Revenues will grow over the year.
Yet, comparisons with 2010 will prove tough, with lower margins from its investment strategy, the absence of one-off cost savings and a lift in incentive expenses. Uncertainty also looms large over the whole sector. Euromoney is a solid business but the value of 15.5 times estimated full-year earnings looks about right, so hold for now.
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