Investment Column: Glittering prospects for Petropavlovsk

St James's Place Capital; Inland
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The Independent Online

Our view: Hold

Share price: 1041p (+14p)

Shares in Petropavlovsk, or Peter Hambro Mining to those that can't pronounce the new name, are a proxy for the gold price and as the value of the shiny stuff has soared to record levels in recent months, so Petropavlovsk's stock has benefited. Those holding the shares for the last year have seen their investment rise by more than 160 per cent.

The Russia-based group published a trading statement yesterday, saying that production in 2009 was up 21 per cent compared to a year earlier. The company predicts that output will jump again this year, by as much as 56 per cent. Clearly this should warm the cockles of the hearts of investors, but even more promising is the group's pledge yesterday to reinstate the dividend.

Petropavlovsk said that in light of its "excellent" results it had decided to pay an interim dividend of 7 pence a share at the end of March. No final dividend will be paid but there is a promise that this will be restored in the future.

Together with the high gold price, this forthcoming restoration of regular interim and final dividends make Petropavlovsk attractive enough as an investment as it is, but there's still more to like about the shares – they are cheap.

Liberum Capital points out that, despite the surge in the share price, the stock is still at bargain levels. It calculates Petropavlovsk's net asset value at £7.98 a share [assuming a $1,000 an ounce gold price] but estimates a fair value of between £11.97 a share and £15.96 a share. "Petropavlovsk is trading on spot 9.9 times 2010 earnings and 9 times in 2011, which even with project delivery risk fears, we believe is just too cheap for a company with such high quality growth potential," it said

Of course, even the safest bet can go pear-shaped and commodity prices are ever volatile. That being said, this company has too much in its favour to be overly concerned by these issues. We say buy, with confidence.

St James's Place Capital

Our view: Buy

Share price: 275p (-1p)

The only thing more surprising than just how good St James's Place Capital's figures were yesterday was the reaction of the shares. The wealth manager/life insurer finished virtually unchanged. That was largely because of the market as a whole, and they won't stay at this level for long. Investors should take note.

This is a company that smashed the City's sales forecasts. In the fourth quarter total new business increased by 38 per cent to £133m on an annual premium equivalent basis (which gives more credit for recurring policies than one offs) compared to the consensus forecast of about £111m, while £700m net was added to funds under management of £21.4bn. In fact, whichever metric you care to look at, the company was ahead of the curve.

Significantly, the size of the sales force (they're called partners) increased by 9 per cent to 1,464, which should drive further gains. SJPC focuses on advice-based sales to wealthy clients and it seems those clients want back into the market through equity-based products in a big way. Their money is doing nothing in cash. With interest rates set to remain low for some time, it is a trend that will continue to help the company.

If there is a lingering worry, it is this. SJPC is 60 per cent owned by Lloyds Banking Group which inherited the stake from HBOS. It is non core and Lloyds will want to do something with that stake sooner or later. However, that's in the medium term. Right now, SJPC has the wind in its sales and with the shares trading on just 0.85 times the value of its in-force policies and 12 times 2011 estimated earnings they are cheap even after recent gains. So buy.


Our view: Buy

Share price: 20.75p (+0.5p)

Whatever your views on the short-term fate of the housing market, the long-term fundamentals point to a pressing need for more homes. And land is needed for those homes.

Inland's core business is buying up brownfield sites, taking them through the planning process and once the relevant approvals are in place, selling them off.

House builders can save a lot of time and energy by dealing with it. The company is also into a bit of building on the side and with its trading update yesterday announced it had entered into a joint venture, which has acquired an 11-acre site in Hertfordshire with consent for 51 houses, including 15 of which have been pre-sold. This exposes Inland to any short-term pick-up in housing momentum. In short, the company appears to be on the right track.

At 9.4 times 2011 forecast earnings the shares are not expensive. This is a company with real potential. So buy.