Investment Column: here's still value to be had from Invensys

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Our view: Buy

Share price: 279.9p (-6.4p)

Invensys is not the company many remember from five years ago when the sprawling conglomerate beset by debts, profit warnings and job losses embarked on a huge restructuring programme. Now a lot leaner and fitter, it can look to the future with some confidence. Full-year numbers yesterday showed that operating profits rose 2 per cent to £248m, despite a slight decline in revenues at £2.2bn.

The business is split into three main divisions. At operations management – an IT and consultancy service to help industrial operations from oil refineries to manufacturing sites improve safety and efficiency – revenues fell 9 per cent to £1bn, and operating profit tumbled 23 per cent to £92m as clients reduced spending during the recession. But prospects look better this year thanks to a contract for two further nuclear reactors in China and signs of recovery elsewhere.

Revenues at the rail division, which offers technology to control signalling and communications, rose 10 per cent as the market remained strong, with activity picking up in the UK in the second half. With hopes of a major re- signalling contract at four London Underground lines, there is optimism.

Invensys Controls' revenues fell slightly as the appliance market declined. But restructuring saw profitability more than double.

Chief executive Ulf Henriksson, who has masterminded the group's rise from the ashes, said the performance during the downturn had given him confidence. The group's order book grew from £2bn to £2.3bn, and the company has been especially focusing on emerging markets, which account for 40 per cent of orders.

Debts have been slashed and Invensys has £363m in cash on the balance sheet. Broker Charles Stanley thinks that on price of 13 times this year's forecast earnings, the stock is fully valued. But we think there could still be value to be found as the economy recovers. Buy


Our view: buy

Share price: 66.25p (+6.25p)

Elementis, the chemicals group whose products are used for everything from waterproofing mascara to coating metals, appears to be in its element. So much so that, despite forecasting a pullback in earnings in the second half compared to the first, the company now expects full-year results to come in "well ahead" of expectations.

An unscheduled trading update yesterday confirmed that the robust trading patterns seen in the first three months of the year have persisted into the second quarter, with the speciality products business receiving an additional boost from a seasonal upswing in coatings sales. Sales to the personal care and oilfield drilling sectors are also holding up, as is demand in the chromium chemicals business.

Part of the strength, of course, is down to restocking as companies rebuild their inventories. Still, any potential softening in demand as the year progresses and the impact of restocking fades, now looks set to be less pronounced than was previously thought. So Elementis looks well positioned.

However, we've saved the best news for last. Elementis shares are cheap, with the stock trading on just 8.3 times this year's earnings, according to RBS. At the same time they yield 4.8 per cent with the dividend 2.5 times covered by earnings. Buy.


Our view: Hold

Share price: 200p (Unchanged)

Mulberry, the luxury fashion brand and retailer, signalled its growing confidence yesterday by revealing it had signed leases for a new flagship store and head office in London. The retailer said the bigger 5,400 sq ft shop on New Bond Street will enable it to showcase its entire product range more "strongly and coherently" than at its existing split level store on the same street, which will close. The property deals also reflect the fact that Mulberry's trading continues to be strong. Profits, before a £1.1m exceptional charge for the store closure, for the year to 31 March 2010 should meet City expectations.

Mulberry says the appeal of its handbags is that they represent "affordable luxury", citing the Bayswater bag which sells for about £500. It has also benefited from celebrity endorsements and introduced the Alexa handbag, following TV presenter Alexa Chung favouring its products. However, investors have taken note: the shares trade on 25 times 2011 earnings – a significant premium to the retail sector. Mulberry has momentum but, at that price, investors should wait for the shares to cool down before shopping again. For now, just hold.