Investment Column: GSK promises investors a shot in the arm

Compass Group; BG Group

Our view: Buy

Share price: 1,277p (+9p)

If it's not one thing, it's another. GlaxoSmithKline's chief executive, Andrew Witty, said that there is no evidence of the recession having an effect on business. As big pharma avoids the worst of the downturn, however, the industry does face pressure from falling drugs prices and increased competition from generic competitors.

Not that there was too much of that in evidence yesterday when the UK's biggest drugs maker published its 2008 results, saying that pre-tax profits were down to £6.7bn, from £7.4bn in 2007. Mr Witty reckons the group has seen off the worst of the generic competition, and as the company presses ahead with its greater push into consumer healthcare, vaccines and the emerging markets, the future is bright.

Investors will be pleased that the group is planning to make £1.7bn of savings by 2011, even if an undisclosed number of soon to be former employees will rightly fear for their jobs.

GSK is a buy, especially as Mr Witty is on the record saying that the group will not do any mega-merger deals that usually turn out to be nothing but expensive. Analysts at RBS argue that, with a tough year for generic competition in 2008 out of the way, "we now raise our target price to 1,350p, based on our three phase discounted cashflow valuation".

All that said, buyers should be concerned that the group is to stop publishing short-term earnings forecasts. Mr Witty says that they distract from the group's longer-term strategy. A reduction in information that the market does find useful, however, does not sit squarely with that argument.

Investors, however, should be encouraged to buy GSK. It is a defensive stock, and with the shares up 7.6 per cent in the last 12 months, the market likes the growth strategy. Then there's the dividend increase of 8 per cent announced yesterday, which should also help. Buy.

Compass Group

Our view: Buy

Share price: 357.25p (+14.25p)

Food companies, assuming there are no other skeletons in the cupboard, are renowned for being a decent investment punt during a recession. We all have to eat, after all.

Following the analogy, Compass Group, the biggest caterer in the world, which yesterday published its interim management statement, should be top of every investor's stock picks. Thankfully, it is not disappointing shareholders.

The FTSE 100 company's shares have been stellar for punters in the last year, bucking the trend and actually rising by a touch over 5 per cent. After announcing yesterday that it had had a "very good first quarter," with profits "well ahead of the same period last year," the shares were up another 4.2 per cent.

Nearly every listed company is trying to convince investors of its ability to cut costs, but with Compass, which provides catering services for a variety of sectors including the Army and Chelsea Football Club, the claim islikely to stick, given the number of casual employees on its books.

And it gets better still for investors: despite the impressive performance of the shares, they are still undervalued, say the experts. "This update confirms its defensive growth profile with good earnings to free cashflow visibility. Its 15 per cent valuation discount to [rival] Sodexo looks unwarranted despite its more cyclical profile... Sodexo trades at 10.1 times 2009 earnings before interest and tax versus 9.4 times for Compass," says Exane BNP Paribas.

In times such as these, safe stocks are the ones to go for, and that is certainly what you get with Compass. The fact that it also trades at a discount is a further bonus. Buy.

BG Group

Our view: Buy

Share price: 1,048p (+97p)

A good day for the oil and gas outfit BG Group yesterday as it beat forecasts to deliver a 25 per cent hike in fourth-quarter profits.

The analysts were falling over themselves to recommend the company. Particularly impressive was BG'sliquefied natural gas (LNG) performance, a division that contributed earnings before interest and tax of £456m, which was well above the estimates of the likes of Merrill Lynch, where analysts had predicted just £205m.

The group was bullish in its outlook for 2009, saying that global demand for LNG will hit 400m tonnes by 2020, and that the company is expecting growth this year despite the recession.

"The increased profit guidance for the LNG division could lead to some profit upgrades. At the moment, the consensus earnings per share estimate for 2009 is 75p, which places the shares on a prospective PE of 12.7 times," counsel Charles Stanley's watchers, who say buy. We agree.

Start your day with The Independent, sign up for daily news emails
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Recruitment Genius: Senior SEO Executive

£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

Recruitment Genius: Online Customer Service Administrator

£16000 - £18000 per annum: Recruitment Genius: An Online customer Service Admi...

Recruitment Genius: Digital Marketing Executive

£18000 - £22000 per annum: Recruitment Genius: This global, industry leading, ...

Day In a Page

'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Russell Brand's interview with Ed Miliband has got everyone talking about The Trews

Everyone is talking about The Trews

Russell Brand's 'true news' videos attract millions of viewers. But today's 'Milibrand' interview introduced his resolutely amateurish style to a whole new crowd
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before
'Queer saint' Peter Watson left his mark on British culture by bankrolling artworld giants

'Queer saint' who bankrolled artworld giants

British culture owes a huge debt to Peter Watson, says Michael Prodger
Pushkin Prizes: Unusual exchange programme aims to bring countries together through culture

Pushkin Prizes brings countries together

Ten Scottish schoolchildren and their Russian peers attended a creative writing workshop in the Highlands this week
14 best kids' hoodies

14 best kids' hoodies

Don't get caught out by that wind on the beach. Zip them up in a lightweight top to see them through summer to autumn
Robert Fisk in Abu Dhabi: The acceptable face of the Emirates

The acceptable face of the Emirates

Has Abu Dhabi found a way to blend petrodollars with principles, asks Robert Fisk