Investment Column: Fidessa is a buy, despite selling to crisis-hit banks

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The Independent Online

Our view: Buy

Share price: 686p (+86p)

Compared to a year ago, there are fewer banks employing fewer bankers, ergo, companies that offer services to the financial institutions must be feeling the heat.

Or not, according to Fidessa, the trading platform provider. The company issued its full-year results yesterday, beating analyst forecasts and sending the shares soaring by 14.3 per cent.

The market seemed happy to ignore the fact Fidessa said that although the order book is in good shape, "we are clearly facing uncertain and unprecedented market conditions which make it difficult to forecast accurately in the short term."

The group's counter-argument, that it is helped by customers responding to the financial crisis by concentrating on costs and efficiency, clearly resonates with investors: that, and the fact that the full-year pre-tax profits more than doubled, up 111 per cent, with the dividend up 36 per cent.

The best news for buyers, however, is that until yesterday the market had not quite grasped the fact that the group was doing so well.

Before yesterday's jump in the shares, the stock was down 34 per cent in the last 12 months, leaving it undervalued, say watchers at Jefferies.

"The stock trades on a 2009 price- earnings multiple of about 10 times, representing to us an unwarranted discount to its peer group. Given positive underlying market drivers, we reiterate our buy rating."

Conscious though we are of a market that has already claimed Lehman Brothers, half of Iceland and effectively RBS and HBOS, we tend to agree with those at Jefferies. Fidessa is performing well and though not without risk, the investment case is compelling. Buyers should get in now before the rest of the market catches up. Buy.



Umeco

Our view: Cautious hold

Share price: 199.5p (-14.5p)

On the face of it, investors should like Umeco, the aerospace engineer. The company is growing at an impressive rate, the dynamics of the industry are with it, and the group's management are "quietly pleased" with life.

We would not be buyers of the shares, however. The company issued its interim management statement yesterday saying that "activities are in line" with expectations and although full-year revenue growth will not hit the heady 25 per cent of yesteryear, investors can expect earnings to increase by about 12 per cent.

With the share price down by more than 60 per cent in the last 12 months, it follows that there must be something else wrong. Chief executive Clive Snowdon concedes that there are worries about the general state of the civil aerospace industry, particularly with production delays, and strikes at the likes of Boeing.

There are also particular qualms about Umeco's debt. Watchers at Investec worry about the proximity of covenants and while Mr Snowdon says it is largely because the group's debt is in dollars, he does concede that some investors are vexed.

Analysts at house broker UBS say that the "valuation is clearly cheap," but even they concede that "the market is nervous where covenant cover is tight." Cautious hold.



Mondi

Our view: Sell

Share price: 146.75p (-16.25p)

Investors in South African paper group Mondi will not count yesterday as one of the group's finest.

The shares were down 10 per cent after Mondi issued a trading statement under the rules of the Johannesburg Stock Exchange (JSE), where it has a dual listing. Under JSE rules, when basic earnings per share are expected to come in 20 per cent lower than the previous year, a company is obliged to tell the market. The company said that full-year EPS would be between 19 cents and 23 cents, down from 39.5 cents in 2007.

It also confirmed yesterday that full-year operating profits would be about 8 per cent down on last year.

For the investor who likes a white-knuckle ride, watchers at the company's house broker UBS set a price target of 200p, but concede that they are"concerned by weakening price [and] volumes, which are unlikely to improve over next 12 months."

The experts at Goldman Sachs downgraded the group to a sell yesterday, saying the "first half of 2009 will be tough, with demand trends seen as very weak". Mondi will issue its full-year numbers on 26 February, but we would not be inclined to wait that long. Sell.

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