Investment Column: Go for G4S if you're still feeling insecure
Johnston Press; Michael Page
Wednesday 05 May 2010
Our view: Buy
Share price: 271.1p (+3.7p)
If you want a stock that is both defensive and offers the prospect of growth, then you can do a lot worse than G4S, the security services group which issued what one broker described as an "extremely solid" update yesterday. The defensive credentials were plain to see last night, with the shares among the few on the FTSE 100 that gained ground as the market plunged into negative territory. G4S posted a rise of 1.4 per cent while the FTSE 100 as a whole slumped by more than 2.5 per cent.
Yesterday's trading update must have helped, of course, but the waning appetite for risk meant that the money was flowing from stocks that the market viewed as risky and into those it considers to be relatively safe, and in an uncertain world, a security company looks to be just that. In terms of growth prospects, too, there is plenty to like. G4S boasts an enviable exposure to fast-growing emerging markets. Coupled with improving earnings in Western Europe and the US, this should drive the business forward.
The investment case is sealed by the valuation. Bears will no doubt point to the fact that G4S is up over 70 per cent since October 2008, when markets were reeling from the collapse of Lehman Brothers. In response, we'd highlight the fact that, for all its strength since those dark days, G4S still trades on a multiple of just 12.7 times Panmure Gordon's estimates for 2010. That falls to below 12 times when you factor in the broker's numbers for 2011. There is also a prospective yield of almost 3 per cent this year, just above that level next year and 3.7 per cent in 2012. There's no such thing as security on the stock market these days but G4S is about as close as you can get. Buy.
Our view: Hold
Share price: 32p (-1.25p)
Regional newspapers struggled badly through the downturn as advertising revenues tumbled. Added to the ongoing fall in circulation, 2009 saw about 60 titles closing in the UK. The pinch was felt at the biggest publishers, Northcliffe Media and Trinity Mirror, and Johnston Press, which owns The Scotsman and Yorkshire Post.
However, recently there have been signs of recovery. The regionals, which are more dependent on advertising than the nationals, suffered particularly over the migration of classified advertising on to the internet. But declines are now falling, which is positive, although companies are still waiting for a return to growth.
Still, Johnston Press's management is not resting on its laurels. In the face of the decline it is looking at alternative means of delivering content, including charging for online and using devices such as smartphones like the iPhone or tablet computers like the iPad. John Fry, chief executive, said this "is a year of learning". He went on: "We have content that is unique and valuable. The mechanics will become clearer." Digital revenues grew in the fourth quarter and Johnston will benefit from a recovery in the advertising markets that is predicted for the first half at least.
Yet even though Numis put the company's price at a discount to the industry of 6.7 times estimated 2010 earnings in March, there remains a lack of clarity over earnings in the longer term, and the share price has tripled in a year: so we can only recommend a hold for now.
Our view: buy
Share price: 423p (-4.6p)
Judging by the way Michael Page's shares have performed over the last year or so, yesterday's (minor) disappointment that a £50m settlement for overpayment of VAT is now a £38m settlement will not bother anyone much. We suggested investors steer clear of the company in July when the shares were at 234.75p, which doesn't look too clever given the way the shares have performed. So should we buy in now?
Of all the recruiters Page, with international reach, a focus on white-collar workers and low exposure to the public sector, looks to be in the best position. It has a quality chief executive in Steve Ingham, who talks sense, and strong operational gearing to a recovering economy. Financial services is not as dominant at Michael Page as people think, either, although a recovery in the City wouldn't hurt.
If you have doubts about the economy, then Page is not for you. There is an argument that says the shares have run their race for now, and at 38 times this year's earnings they are hardly cheap (although that falls rapidly over the next couple of years). Still, we think they will repay long-term investors with Michael Page offering the most upside in its sector. Buy.
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