Investment Column: Hogg's is cheap, but the risks are very high

Shaftesbury; Chrysalis Music


Our view: Speculative buy

Share price: 29p (+0.75p)

For investors, Hogg Robinson presents something of a dilemma. The visibility of its earnings are about as cloudy as the economic sky, and it's likely to remain that way for some time. The business travel arranger's results this year at least offer some positives. Despite a fall in revenues (down 7 per cent to £326.8m), costs cuts have enabled the company to post a 15 per cent rise in pre-tax profits to £28.4m, although that is flattered somewhat by the fact that last year's numbers included hefty one-off restructuring costs. At the operating level, profits were up just 1.7 per cent.

A major concern with Hogg's is the fact that the company is going to have to renegotiate its financing – the current facility lasts only until September 2011, and the cost of it both in terms of interest and up-front fees is likely to rise sharply, reflecting the harsher climate. There are certainly signs that the outlook for business travel is starting to improve. The question is, however, whether it will improve sufficiently to offset the increased financing costs. That's a tough question to answer. The economic climate looks less positive than it did a couple of months ago, not least because of the ongoing eurozone debt crisis. There is a risk that the pick-up could be more modest than Hogg's had hoped.

On the plus side, the cost base is reflective of the new reality and the increasing trend towards online booking will mean that, as business does improve, costs may not rise at the same rate. The house broker, Collins Stewart, has the shares on just 4.7 times 2011 earnings, which is cheap on the face of it, and the forecast yield, at 4.2 per cent, is respectable, with the current dividend well covered.

If the projections for a recovery in business travel prove to be well founded, then Hogg's could offer exceptional value. But the risks and uncertainties are substantial. So we would suggest a speculative buy only for those with strong stomachs.

Shaftesbury

Our view: Hold

Share price: 361.8p (+6.8p)

Property companies have been doing well of late, with updates from the likes of British Land and Land Securities lifting the mood among investors. Shaftesbury continued the trend with its half-yearly figures yesterday, though unlike bigger peers who deal in offices and malls, its business is focused on shops, restaurants and other smaller units around the West End of London. So when it comes to gauging demand for Shaftesbury's properties, investors must pay attention to the flow of visitors to fashionable haunts such as Covent Garden and Charlotte Street. For now, the company says that consumer spending across its locations "remains buoyant". Shaftesbury is financially strong, and is confident of its portfolio delivering growth in capital and rental values.

But while we agree about the long-term prospects, we worry about the short-term picture. We wonder if the West End will be able maintain its resilience in the face of public-sector cuts in the UK and what looks like a growing sovereign debt crisis in Europe. Consumer spending may ebb as economic challenges stack up.

Weighing against that bearish view is Shaftesbury's valuation, with the shares trading at a 12 per cent discount to Evolution's September 2010 net asset value (NAV) forecast. Historically, they've traded at a premium, so this is not one to sell. However, given the economic uncertainties we'd just be holding for now.

Chrysalis Music

Our view: Buy

Share price: 98p (-1.5p)

Many dream of back-to-back number one singles in the US. With writers responsible for Rihanna's "Rude Boy" and Taio Cruz's "Break My Heart", the music publishing group Chrysalis Group achieved exactly that, and the good news didn't end there. First-half results were met positively by the market. Normalised operating profit rose from £1.4m in the six months to the end of March 2009, to £2.6m. Revenues also rose from £31.2m to £32.7m. Success was driven by writers of songs including Kylie and Robbie Williams. Non-publishing revenues were bolstered by the remastered Beatles albums.

The chief executive, Jeremy Lascelles, called the performance "pleasing" against the backdrop of a volatile recording industry. The start to the second half of the financial year was "encouraging," he said, after the chart success of Laura Marling and Broken Bells. The company expects more consolidation after buying First State Media in April and looks strong. Investec has its 2011 enterprise value at 15.9 times earnings (before interest, taxation, depreciation and amortisation). Not hugely cheap, but there's more to come. Buy.

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
filmPoldark production team claims innocence of viewers' ab frenzy
Life and Style
Google marks the 81st anniversary of the Loch Ness Monster's most famous photograph
techIt's the 81st anniversary of THAT iconic photograph
News
Katie Hopkins makes a living out of courting controversy
people
News
General Election
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Guru Careers: Pricing Analyst

£30 - 35k (DOE): Guru Careers: We are seeking a Pricing Analyst with experienc...

Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Sales Team Leader - Wakefield, West Yorkshire

£21000 - £24000 per annum: Ashdown Group: The Ashdown Group has been engaged b...

Ashdown Group: Head of Client Services - City of London, Old Street

£45000 - £50000 per annum + benefits : Ashdown Group: A highly successful, int...

Day In a Page

Revealed: Why Mohammed Emwazi chose the 'safe option' of fighting for Isis, rather than following his friends to al-Shabaab in Somalia

Why Mohammed Emwazi chose Isis

His friends were betrayed and killed by al-Shabaab
'The solution can never be to impassively watch on while desperate people drown'
An open letter to David Cameron: Building fortress Europe has had deadly results

Open letter to David Cameron

Building the walls of fortress Europe has had deadly results
Tory candidates' tweets not as 'spontaneous' as they seem - you don't say!

You don't say!

Tory candidates' election tweets not as 'spontaneous' as they appear
Mubi: Netflix for people who want to stop just watching trash

So what is Mubi?

Netflix for people who want to stop just watching trash all the time
The impossible job: how to follow Kevin Spacey?

The hardest job in theatre?

How to follow Kevin Spacey
Armenian genocide: To continue to deny the truth of this mass human cruelty is close to a criminal lie

Armenian genocide and the 'good Turks'

To continue to deny the truth of this mass human cruelty is close to a criminal lie
Lou Reed: The truth about the singer's upbringing beyond the biographers' and memoirists' myths

'Lou needed care, but what he got was ECT'

The truth about the singer's upbringing beyond
Migrant boat disaster: This human tragedy has been brewing for four years and EU states can't say they were not warned

This human tragedy has been brewing for years

EU states can't say they were not warned
Women's sportswear: From tackling a marathon to a jog in the park, the right kit can help

Women's sportswear

From tackling a marathon to a jog in the park, the right kit can help
Hillary Clinton's outfits will be as important as her policies in her presidential bid

Clinton's clothes

Like it or not, her outfits will be as important as her policies
NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

Who's monitoring the outsourced NHS services?

A report finds that private firms are not being properly assessed for their quality of care
Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

How do Greeks feel about Syriza?

Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
From Iraq to Libya and Syria: The wars that come back to haunt us

The wars that come back to haunt us

David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

Too busy to surf? Head to The Pool

A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders