Investment Column: Hold Informa, but wear asbestos gloves

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The Independent Online


Our view: Hold

Share price: 231p (+19.25p)

If there's one sector that investors should treat with asbestos gloves in the current environment, it is publishing. There has been little shelter from the financial storm as circulation and advertising revenues fall, yet there is a belief that some stocks have been dragged too low.

There has been a groundswell of support from the analysts who believe that Informa could be worth a punt this year. It successfully picked its way through a potentially thorny rights issue earlier this year, and the proceeds were used to pay down debt.

The FTSE 250-listed group has a solid business, whose publications tend to be in niche, subscription-based titles that do not suffer as badly as its more commercial counterparts in a downturn. Its Academic and Professional & Commercial divisions are still growing, and management has also kept a tight control on costs.

The group pleased investors yesterday by announcing that trading was in line with expectations this year, despite the "very challenging trading conditions".

Yet, the group is having to manage down some of its businesses, including Events & Training, as revenues sink, while the more resilient publishing side could be hit later this year, so the uncertainty is too high to pile in.

If you already hold the stock, keep it in the portfolio, as there is definitely some upside, with the shares trading at 7.3 times 2010 earnings on to Numis' estimates. It could be worth a punt, but remember the asbestos gloves could be handy. Hold.

Premier Foods

Our view: Hold

Share price: 37.5p (-0.75p)

Premier Foods relaunched Hovis last autumn to a fanfare. A blockbuster TV advertisement of the iconic bread brand's history featured a young boy after the Second World War blitz and fireworks on the eve of the Millennium. Stirring stuff, indeed.

Yesterday, there were few sparks as Britain's biggest food manufacturer revealed no change to its previous half and full-year sales and profits forecasts. The market consensus is that Premier Foods will deliver underlying pre-tax profits of £170m this financial year, down from £184m in 2008.

However, the update contained some tasty ingredients. For the half year to 27 June, Premier Foods again revealed "excellent" sales at its bread business, buoyed by the continuing momentum of Hovis. It also said its grocery division's brands, including Sharwood's Asian sauces, Bisto gravy granules and Branston pickle, continued to generate "good growth".

While its chilled business delivered growing sales of its Quorn vegetarian brand and own-label lines made for retailers, Premier Foods said the division's profits had taken a hit from hefty marketing spend and increased manufacturing costs in its meat-free business. Furthermore, the low rating of Premier Foods' shares, which have fallen 54 per cent over the past 12 months, partly still reflect ongoing investor concerns over its £1.4bn of net debt. This is despite a £404m fundraising unveiled in March that Premier Foods said will be used to pay down its debt mountain.

Some City analysts have also questioned the sustainability of its operating margins, particularly in its grocery division. However, its shares trade on a forward price-earnings ratio of 7.4 times, and the City thinks they are fairly priced. Hold.

Titan Europe

Our view: Sell

Share price: 25p (-3.5p)

The wheels are coming off the wheelmaker. Titan Europe, which makes wheels for everything from tractors to mining trains, as well as tyres and braking systems, has been hit hard by the recession. Last August, its shares were more than 160p. Since late October they have never broached 35p.

The company's numbers are not getting better. According to yesterday's half-year trading update, revenues are expected to come in some 35 per cent lower than in 2008, pushing the company to a loss. More than a third of its jobs have gone since January.

Given its core markets, the group's problems are not surprising. Titan says construction division volumes will be down 50 per cent in the first half. The agricultural and mining markets are little better, with both expected to be down between 25 per cent and 30 per cent.

Titan's management is trying to stay upbeat, pointing to recently renegotiated banking facilities as evidence of its lenders' commitment to the business, and "small signs of improvement in order books" in recent months. But the shares still dropped 13 per cent in trading. With only ambiguous signs of economic recovery anywhere, and little but grim news from the eurozone, Titan is a sell unless you have a long time to wait. Sell.