Investment Column: Finals show that fund manager Aberdeen is a safe bet in volatile times

Stagecoach; Petroceltic International

Our view: Hold

Share price: 212.1p (+1.1p)

It's a mark of Aberdeen Asset Management's resilience that the fund manager's shares, which we advised holding at 228.9p in July, are still very close to that level. The intervening period has seen a sharp escalation in the European sovereign debt crisis. As a result, stock markets have resembled a rollercoaster ride on Blackpool Pleasure Beach.

Many people will now be wondering whether keeping money under the bed isn't the best option. With volatility showing no signs of going away, fund managers don't exactly look like the most clever places to put money.

But (yes, there is a but) Aberdeen still has a lot going for it. The firm's results for the year to 30 September showed a 44 per cent rise in underlying pre-tax profits to £302m, on revenues of £784m (£638m). What's more, the company has a chunky net cash pile of £127.5m, even after buying back shares to reduce the dilution caused by paying its fund managers' bonuses in stock.

This will keep Aberdeen in the regulators' good books, and facilitate continued returns to shareholders, whose dividends were increased by nearly 30 per cent this year.

The company suffered a small net outflow of funds (£1.7bn) but the bald figure does not tell the whole story. Money has poured out of fixed-income funds; however, it has been replaced by new business in higher-margin equity-based products. And, given the prevailing market conditions, a £1.7bn outflow isn't too bad. Total assets under management stood at £170bn.

Turning to the shares, we said "buy" Aberdeen in March 2010 when they were trading at 126.7p before moving our recommendation to "hold". The company trades on a full-year 2012 multiple of about 10.5 times forecast earnings, in line with its peers, with a very healthy prospective yield of 5 per cent. There don't appear to be any reasons to doubt the company's ability to grow its dividend, so the yield is solid.

With stable management and a diversified business profile, we would continue holding Aberdeen for now. However, we would not think twice before buying on any signs of weakness.

Stagecoach

Our view: Buy

Share price: 265.4p (+16.8p)

We've been backing Stagecoach for some time – and the fact that its stock is up since our last "buy" recommendation in April illustrates the transport group's strengths. There have been no shortage of challenges. In addition to the market factors similar to those affecting Aberdeen AM, Stagecoach has also overcome rising fuel prices.

Yesterday's strong half-year results suggest this trend is likely to persist, as its East Midlands rail arm returns to profitability. The division weighed on earnings in the six months to the end of October, so a positive change there will be welcome.

The fact that Stagecoach announced plans to invest £44m in its Megabus business alongside its results only adds to its attraction. The budget coach division is perfectly placed to reap dividends in the current, slow-growth economic environment.

The extra money will bolster it both here and in the US and Canada, which should enhance the group as whole. Megabus offers a cheaper alternative to more established coach networks – and being cheap helps when consumer spending is coming under increasing pressure.

At about 10 times forward earnings, with a healthy dividend yield of more than 3 per cent, the stock is also affordable at current levels.

Petroceltic International

Our view: Buy

Share price: 7.4p (+10.45p)

Shares in the Aim-listed Petroceltic International soared yesterday after the North Africa-focused oil and gas explorer announced positive drilling results that should remove lingering uncertainty about the commerciality of the Ain Tsila field in Algeria.

In a statement that sent Petroceltic's shares higher, the group said its AT-9 well produced gas at a combined rate of 52.8 million cubic feet per day during the test. The well has now been suspended for future production use and the chief executive, Brian O'Cathain, believes it could eventually yield up to 60 million cubic feet a day.

The positive test results gave Petroceltic a well-needed boost (even with yesterday's share price jump, the stock remains down more than 40 per cent since the start of the year). Much of the decline is based on concerns about instability in North Africa and the Middle East in the wake of the changes wrought by the Arab Spring of protests against repressive regimes.

However, Petroceltic's share price decline appears to have been overdone – a point the market seems to accept, given the uptick in its shares since the the low point at the end of September and beginning of October. But with a joint venture with America's Hess in the works – in the great new hope of Kurdistan – Petroceltic's share price still has the room to expand.

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