Investment Column: Hold on to see if VT stops making waves

Robert Wiseman Diaries; Alternative Networks
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The Independent Online

Our view: Hold

Share price: 559.5p (-4.5p)

VT Group is trying very hard not to be a defence company. The business, which used to be called Vosper Thornycroft, once built a reputation on making destroyers for the Navy, but it is now trying to push its outsourcing credentials, in areas such as education, policing and broadcast television.

The reasons why are obvious. After the next election, the government, whatever its shade, is going be gung-ho with cuts, and those with the opportunity to take essential work off the state's hands are likely to cash in.

But that is also rather VT Group's problem. It is still considered a defence company by most analysts, and chief executive Paul Lester concedes that he has a job on his hands persuading government (he lunched with the shadow Treasury minister Mark Hoban MP before speaking to The Independent yesterday) and potential shareholders that the company is an out-and-out support services outfit.

Certainly the analysts still rank the group as a defence company. Those at Cazenove point out that on a price earnings basis the group's shares look pricey when compared to its peers, which the analysts list as Babcock, BAE Systems, Serco and QinetiQ. On an enterprise value to Ebitda basis, the group is more in line, they say, especially taking into account VT's superior net cash position.

Persuading the market of anything can take as long as turning around an aircraft carrier, but that is the scale of the task facing Mr Lester and his team. He argues that the incumbent government is now focused on the election rather than saving costs, which gives the company about a year to get everyone onside, a situation he considers 75 per cent opportunity, and 25 per cent risk.

We reckon VT Group could be an inspired bet, but would hold and wait to see if it can get everyone to stop thinking of it as a shipmaker. Hold.

Robert Wiseman Diaries

Our view: Buy

Share price: 435p (+14.4p)

Milk has been pure gold for investors in recent months. Buyers that have held shares in Robert Wiseman Diaries have seen their investment jump by nearly 25 per cent in the last 12 months, which included a 3.4 per cent rise yesterday after an upbeat trading update.

The group said first-half profits would be higher than the company had initially forecast after sales soared: milk sales have jumped 10 per cent in the six months of the year, while debt levels, previously a concern for investors, have fallen to levels lower than the group imagined.

However, we would worry that an investment today may turn a bit little sour. The analysts at Shore Capital, who say buy, point out that: "Wiseman stock, following our upgrades, trades on a 2009/10 price earnings ratio of 12.3 times, which appears reasonably full. However, the 2009/10 rating is less demanding on a cashflow basis with the enterprise to Ebitda multiple of about 5.4 times. We recognise that we may be a little late to the Wiseman party."

The watchers go on to say that further upgrades are possible especially with operating profit per litre of milk increasing, however.

Operationally, Robert Wiseman is on the right track, even if the stock may well be reaching a point when it is no longer worth buying. And that is a problem because thus far the group has been a growth investment: we think the upward momentum is now running out of steam.

Nonetheless, we would not be surprised to hear positive news on a dividend before too long, and for that reason, we would be buyers of the shares. Buy.

Alternative Networks

Our view: Hold

Share price: 109p (+2.5p)

Alternative Networks is the group SMEs call in to sort out all their telecoms needs. The company was set up in 1994 with a loan of £9,000. It has grown to employ 400 people, and has been called in by over 4,500 businesses in the UK, including the outdoor advertising group JC Decaux, the broadcaster Channel 4, and Miele, the electrical appliances company.

The group, which listed on AIM in 2005, yesterday confirmed that trading for the 12 months to September would be in line with market expectations. It expects pre-tax profits of £8.9m, rising to £9.7m next year.

SMEs are not a great sector to be focused on at the moment, but the group has grown subscriber numbers. This was tempered by the average revenue per user falling as people travel less and companies have laid off staff. Analysts at FinnCap said the stock was worth a look with its 4.8 per cent yield and trading on eight times 2010 earnings, but we are holding for now.

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