Investment Column: Hogg Robinson is risky but worth a punt

Halma; Real Good Food Company
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The Independent Online

Our view: Buy

Share price: 34p (-0.75p)

We were nervous about the business travel company Hogg Robinson back in May, not least because it is the sort of business that has very limited visibility. However, we felt it was worth a speculative punt at 29p, and the company has justified our faith both in terms of its results and its share price.

The company yesterday produced a sparkling set of interim numbers with sales up 9 per cent at £169.2m, but pre-tax profits quadrupling to £13.3m. Underlying profits were up a slightly more sober 104 per cent to £15.3m, but whichever way you look at it, these are good numbers. Another important point to note is the 25 per cent dividend rise to 0.5p a share, which is four-times covered by earnings. Management were keen to stress that they are operating a progressive dividend policy and we think there could be a similar rise at the full year, all being well.

Hogg Robinson has benefited from management getting the business ready to fire into an upturn during the recession. As such, it has been able to cope with a good increase in sales volumes with very little increase in costs. But is it sustainable given that the majority of earnings come from Europe (with a large minority in North America)? That's a difficult question to answer in the throes of a sovereign debt crisis in Europe that, if the worst comes to the worst, could throw the Continent into a nasty downward spiral.

On the plus side however, the global economy is recovering, driven by emerging markets. The company doesn't have a big presence there, but ought to benefit from businessmen from the US and Europe going out in search of opportunities. Business travel volumes are still 10-15 per cent off where they were a couple of years ago and the shares trade on just five-times forecast full-year earnings and with a healthy prospective yield of 4 per cent. Hogg Robinson isn't without risks but we retain our buy.


Our view: Hold

Share price: 313.6p (-15.4p)

Halma says its businesses is to develop products that "protect lives and improve the quality of life for people worldwide". The stock has also been improving the quality of investor's portfolios during the downturn: since March 2009, the share price has more than doubled.

Halma's history stretches back over a century, starting as a tea company in Sri Lanka before moving to rubber. Despite a complete shift in operations, it remains in rude health. Today's specialism is technology sensors; everything from fire detection to lift safety to devices that assess eye health. Halma put out interims yesterday, showing pre-tax profits up 29 per cent in the first half to £49.3m, with sales up 12 per cent to £249.1m and strength across all three main divisions – infrastructure sensors; health and analysis; and industrial safety. Management also highlighted particularly strong growth in Asia since establishing more of a local presence in 2006. Plans are in hand to expand further in China.

The interim dividend is up 7 per cent, and chief executive Andrew Williams said momentum built during the downturn continues to rumble on. The stock looks strong, and is certainly worth having in a portfolio. Yet as Investec pointed out, its price of 16.8 times estimated full-year earnings runs at a 25 per cent premium to the electronic and electrical equipment sector. Pricey, but still worth holding.

Real Good Food Company

Our view: Hold

Share price: 23.5p (+0.75p)

Real Good Food Company (RGFC) has cooked up some tasty numbers since its interims on September 22. It was particularly positive about bakery business, Renshaw, which is "having an exceptionally good year," driven by substantial demand in the home baking and sugar-craft sectors.

RGFC also made encouraging noises about Haydens, which makes cakes for Waitrose, Marks & Spencer and Costa Coffee, saying sales growth remains on budget, as it continues to deliver on a turnaround plan.

Arguably more significant was the "strong growth" at the Napier Brown sugar business, the biggest division by sales. This is being fuelled by a global shortage, which has driven prices to a 30-year high and the division appears was well positioned for growth next year and beyond.

Shore Capital saw enough sweeteners in the update to upgrade full year forecasts. Certainly, the company's earnings multiple of 5.4 for 2011 looks tempting. But given that we tipped them at 27p earlier this year and there is no sign of a dividend, we say hold.